BA Continuum India Private Limited (Previously known as CFC India Services Private Limited), Hyderabad V. Addl.CIT, Range-1, Hyderabad

ITA 1144/HYD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2591 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-11-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 06-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Assessee Lawyers: S RAGHUNATHAN
• Keywords: Depreciation; Transfer pricing; International transaction; Working capital adjustments; Unabsorbed depreciation
• Section: 143(3); 10B

Judgement Text

ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 1 OF 26 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1144/HYD/2014 (ASSESSMENT YEAR: 2008-09) M/S.BA CONTINUUM INDIA PRIVATE LIMITED (FORMERLY CFC INDIA SERVICES PVT LTD) , HYDERABAD PAN: AACCC 2310 C VS ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-1 AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD ITA NO.1145/HYD/2014 (ASSESSMENT YEAR: 2008-09) DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(3) HYDERABAD VS BA CONTINUUM INDIA PRIVATE LIMITED, HYDERABAD PAN: AACCC 2310 C FOR ASSESSEE : SHRI S. RAGHUNATHAN FOR REVENUE : SHRI P. CHANDRA SEKHAR, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THESE ARE CROSS APPEALS FILED BOTH BY THE ASSESSEE AND REVENUE FOR THE A.Y 2008-09 AGAINST THE ORDER OF THE CIT (A)-II HYDERABAD DATED 24.03.2014. ITA NO.1144/HYD/2014 (ASSESSEES APPEAL) 2. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAISE D THE FOLLOWING PRELIMINARY GROUND AS GROUND OF APPEAL NO .1: DATE OF HEARING : 01.03.2017 DATE OF PRONOUNCEMENT : 28.04.2017 ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 2 OF 26 L ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE I, HYDERABAD ('LD. AO') AND ADDITIONAL COMMISSIONER OF INCOME-TAX (TRANSFER PRICING), HYDERABAD ('LD. TPO') ERRED IN CARRYING ON THE ASSESSMENT PROCEEDINGS IN THE NAME OF THE COMPANY AND FURTHER PASSING THE ASSESSMENT ORDERS U/S 143(3) R/W SECTION 144C(4) OF THE ACT AND U/S 92CA(3) OF THE ACT RESPECTIVELY IN THE NAME OF THE COMPANY (FORMERLY KNOWN AS CFC INDIA SERVICES PRIVATE LIMITED) WHICH WAS A NON- EXISTING ENTITY AND THE COMMISSIONER OF INCOME TAX (APPEALS) - II, HYDERABAD ['LD. CIT(A)'] FURTHER ERRED IN UPHOLDING THE SAID ACTION OF THE LD. AO AND LD. TPO. 3. IN ADDITION TO THE ABOVE, THE ASSESSEE HAS ALSO RAISED OTHER GROUNDS ON THE MERITS OF THE ADDITIONS CONFIR MED BY THE CIT (A) AND ALSO THE T.P. ADJUSTMENT MADE BY THE AO. 4. AS REGARDS THE PRELIMINARY GROUND OF APPEAL, BRI EF FACTS ARE THAT THE ASSESSEE, CFC INDIA SERVICES PVT. LTD WITH PAN: AACCC 3062 D, FILED ITS RETURN OF INCOME ON 28.09.2 008. SINCE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSAC TION, THE DETERMINATION OF THE ARMS LENGTH PRICE (ALP) WAS R EFERRED TO THE TPO AT MUMBAI. SUBSEQUENTLY, THIS COMPANY GOT MERGE D WITH BA CONTINUUM INDIA PVT LTD WITH PAN: AACCC 2310 C WITH EFFECT FROM 1.4.2008 BY VIRTUE OF THE HON'BLE HIGH COURT O RDER DATED 18.12.2009. VIDE LETTER DATED 29.03.2010, THIS FACT WAS BROUGHT TO THE NOTICE OF THE AO AND IT WAS REQUESTED TO TRANSF ER THE FILE U/S 127 OF THE ACT RELATING TO ALL OPEN AND PENDING ASS ESSMENTS AND OTHER PROCEEDINGS UNDER THE ACT. ACCORDINGLY, THE C ASE WAS TRANSFERRED TO THE TPO AT HYDERABAD AND THE PROCEED INGS IN THE NAME OF THE MERGED COMPANY WERE TAKEN UP AND COMPLE TED. ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 3 OF 26 HOWEVER, THE PAN OF THE ASSESSED COMPANY IS MENTION ED AS AACCC 3062 D. AGGRIEVED BY THE ASSESSMENT, THE ASS ESSEE RAISED A GROUND BEFORE THE CIT (A) THAT THE ASSESSM ENT PROCEEDING IN THE NAME OF BACI (FORMERLY KNOWN AS CFC) WHICH IS A NON- EXISTING ENTITY IS NULL AND VOID. THE ASSESSEE HAD STATED THAT THOUGH THE ASSESSMENT IS MADE IN THE NAME OF BACI (AMALGAMATED COMPANY), THE PAN NO. OF CFC IS MENTION ED AND NOT OF THE AMALGAMATED COMPANY. IT WAS SUBMITTED TH AT ON MERGER, THE IDENTITY OF TRANSFEROR COMPANY IS LOST AS IT SEIZES TO EXIST IN THE EYES OF LAW AND THEREFORE, THE ASSESSM ENT MADE IN THE NAME OF THE NON-EXISTENT COMPANY IS NOT VALID. 5. THE CIT (A), AFTER CONSIDERING THE ABOVE FACTS O BSERVED THAT THE LETTER DATED 29.03.2010 WAS ONLY TO TRANSF ER THE FILES FROM MUMBAI TO HYDERABAD AND THAT THE PAN MENTIONED THER EIN BY THE ASSESSEE WAS ALSO AACCC 3062 D PERTAINING TO THE ME RGED COMPANY. SHE FURTHER OBSERVED THAT THE ASSESSEE DID NOT SPECIFICALLY BRING TO THE NOTICE OF THE TPO OR THE AO THAT THE ASSESSMENT HAS TO BE MADE IN PAN AACCC 2310 C I.E. THE PAN OF THE AMALGAMATED COMPANY. SHE ALSO OBSERVED THAT THE ASSESSEE KEPT CHANGING ITS NAME DUE TO WHICH THERE MIGHT HAV E BEEN SOME CONFUSION. FURTHER, SHE ALSO OBSERVED THAT THE MERGE R WAS W.E.F. 1.4.2008 DURING WHICH PERIOD, THE ASSESSEE WAS VERY MUCH IN EXISTENCE. THEREFORE, THE CIT (A) UPHELD THE ASSESS MENT ORDER IN PAN AACCC 3062 D. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US REITERATING THE SUBMISSIONS AS MADE ABOVE. ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 4 OF 26 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSMENT FOR THE A.Y 2 008-09 IN RESPECT OF THE AMALGAMATING COMPANY AND ALSO THE AM ALGAMATED COMPANIES HAVE BEEN COMPLETED SEPARATELY, BUT IN TH E NAME OF THE AMALGAMATING COMPANY ONLY. THE ONLY DIFFERENCE IS IN THE PAN NOS. MENTIONED IN THE ASSESSMENT YEARS. AS RIGHTLY HELD BY THE CIT (A), THE AMALGAMATING COMPANY WAS IN EXISTENCE FOR THE A.Y 2008-09, THOUGH BY THE TIME OF THE ASSESSMENT, IT H AD AMALGAMATED WITH THE AMALGAMATED COMPANY. ON BRINGI NG THE FACTUM OF AMALGAMATION TO THE NOTICE OF THE AO, THE CASE HAS BEEN TRANSFERRED TO THE JURISDICTION OF THE AO UNDER WHO M, THE AMALGAMATED COMPANYS REGISTERED OFFICE WAS LOCATED AND THE ASSESSMENT IS ALSO MADE IN THE NAME OF THE AMALGAMA TED COMPANY. THE MENTION OF THE PAN NO. OF THE AMALGAMA TING COMPANY IS ONLY TO DIFFERENTIATE BETWEEN THE AMALGA MATED AND AMALGAMATING COMPANIES. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) AND THE ASSESSEES GR OUND OF APPEAL NO.1 IS THUS REJECTED. 8. THE OTHER GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED AND THE LD. CIT(A) FURTHER ERRED IN INCLUDING OTHER INCOME OF RS. 1,84,60,617 [COMPRISING OF FOREIGN EXCHANGE FLUCTUATION GAIN AMOUNTING TO RS. 1,51,95,408 AND MISCELLANEOUS INCOME AMOUNTING TO RS. 32,65,209] THE 'TOTAL TURNOVER' OF THE COMPANY FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT. 3 WITHOUT PREJUDICE TO GROUND 2 ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 5 OF 26 AO/LD. CIT(A) HAVING HELD FOREIGN EXCHANGE FLUCTUATION GAIN OF RS. 1,51,95,408 AND MISCELLANEOUS INCOME OF RS.32,65,209 AS PART OF TOTAL TURNOVER, ERRED IN NOT CONSIDERING THE SAID FOREIGN EXCHANGE FLUCTUATION GAIN AND MISCELLANEOUS INCOME AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF LD. AO OF NOT ALLOWING DEDUCTION U/S 10A OF THE ACT AS PER THE REVISED COMPUTATION FILED BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREBY: A) THE LD. CIT(A) ERRED IN NOT COMPUTING AND ALLOWING DEDUCTION U/S L0A OF THE ACT SEPARATELY FOR EACH STPI UNITS. B) THE LD. CIT(A) ERRED IN NOT SETTING OFF THE LOSS OF THE HYDERABAD UNIT B WITH THE INCOME FROM OTHER SOURCES AND ALSO ERRED IN NOT ALLOWING THE CARRY FORWARD OF THE NET BUSINESS LOSS/DEPRECIATION ALLOWANCE TO SUBSEQUENT ASSESSMENT YEAR. 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO/LD. AO ERRED IN MAKING A TRANSFER PRICING ('TP') ADJUSTMENT AMOUNTING OF RS, 13,06,52,257 ON INFORMATION TECHNOLOGY ENABLED SERVICES CITES') PROVIDED BY THE COMPANY TO ITS ASSOCIATED ENTERPRISE ('AES) AND THE LD. CIT(A) WHILE UPHOLDING THE SAID ACTION OF THE LD. TPO/ LD. AO ERRED BY:- A) NOT FOLLOWING THE DECISIONS OF THE HON'BLE JURISDICTIONAL INCOME TAX APPELLANT TRIBUNAL 'ITAT') RELIED UPON BY THE APPELLANT IN ITS SUBMISSION WITH REGARD TO ITS GROUNDS RELATING TO TP ADJUSTMENT OF RS. 13,06,52,257; B) NOT EXCLUDING HIGH PROFIT MARGIN COMPANIES; ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 6 OF 26 C) NOT EXCLUDING COMPANIES HAVING SIGNIFICANT DIFFERENCES IN THE FUNCTIONS PERFORMED; D) NOT EXCLUDING COMPANIES HAVING EXTRAORDINARY EVENTS DURING THE RELEVANT YEAR; E) NOT EXCLUDING HIGH TURNOVER COMPANIES CONSIDERING SEVERAL COMPANIES HAVING DIFFERENT SCALE OF OPERATIONS; F) NOT EXCLUDING COMPANIES INCURRING RESEARCH EXPENSES AND/OR MARKETING EXPENSES; G) NOT EXCLUDING COMPANIES OWNING PROPRIETARY PRODUCTS; H) NOT EXCLUDING COMPANIES WHICH FAILED THE LD. TPO'S OWN FILTERS; I) NOT ALLOWING RISK ADJUSTMENT TO THE MARK-UP OF THE COMPARABLE COMPANIES; AND J) NOT ALLOWING THE CLAIM OF THE WORKING CAPITAL ADJUSTMENT TO THE MARK-UP OF THE COMPARABLE COMPANIES. 9. AS REGARDS GROUND NO.2 & 3 ARE CONCERNED, BRIEF FACTS ARE THAT WHILE COMPUTING DEDUCTION U/S 10A OF THE A CT, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED OTHER INCOME OF RS.1,84,60,617 AS A DEDUCTION U/S 10A OF THE ACT. T HE AO OBSERVED THAT THIS SUM CANNOT BE PART OF EXPORT TUR NOVER. HE THEREFORE, EXCLUDED THE SAME FROM EXPORT TURNOVER B UT DID NOT EXCLUDE IT FROM THE TOTAL TURNOVER. ON APPEAL, THE CIT (A) OBSERVED THAT THE OTHER INCOME OF RS.1,84,60,617 INCLUDES FO REX GAIN OF RS.1,51,95,408 AND MISCELLANEOUS INCOME OF RS.32,65 ,209. THE CIT (A) WAS OF THE OPINION THAT THE FOREX GAIN OR L OSS IS PART OF THE OPERATING INCOME AND HENCE PART OF EXPORT TURNOVER AND THEREFORE, ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 7 OF 26 THE GAIN SHOULD BE ALLOWED AS A DEDUCTION U/S 10A O F THE ACT. HOWEVER, AS REGARDS THE OTHER INCOME IS CONCERNED, THE CIT (A) HELD THAT IT IS NOT PART OF THE EXPORT TURNOVER. AG AINST THIS FINDING OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US STATING THAT IF IT IS TREATED AS PART OF THE TOTAL TURNOVER, THEN IT S HOULD ALSO BE CONSIDERED AS PART OF EXPORT TURNOVER. WE FIND THAT THE REVENUE IS ALSO IN APPEAL BEFORE US AGAINST TREATING THE FOREX FLUCTUATION GAIN AS EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. WE FI ND THAT THE FOREX GAIN IS ON ACCOUNT OF THE EXPORT TURNOVER OF THE AS SESSEE AND THEREFORE, IT IS TO BE PART OF THE EXPORT AND TOTAL TURNOVER AS RIGHTLY HELD BY THE CIT (A). THE CIT (A) HAD FOLLOWED THE D ECISIONS OF VARIOUS HIGH COURTS AND THE TRIBUNAL WHICH ARE REPR ODUCED AT PARA 6.4 OF THE CIT (A)S ORDER. THE CIT (A) HAS AL SO BROUGHT OUT THE DISTINGUISHING FACTS IN THE CASE OF SHAH ORIGIN ALS (2010) 191 TAXMANN.COM 81 THAT IN THAT CASE THE FOREX GAIN OR LOSS WAS ON ACCOUNT OF RE-STATEMENT OF EEFC ACCOUNT AND NOT AS T O WHETHER IT PERTAINS TO DIFFERENCE IN BILLED AMOUNT AS PER THE INVOICES AND REALIZED AMOUNT. THEREFORE, WE SEE NO REASON TO INT ERFERE WITH THIS FINDING OF THE CIT (A). HOWEVER, AS REGARDS THE MIS CELLANEOUS INCOME OF RS.32,65,209 IS CONCERNED, THERE IS NO BR EAKUP OF THE INCOME AND AS TO THE EXACT NATURE OF SUCH INCOME. T HEREFORE, WE ARE OF THE OPINION THAT THE SAME IS TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER FOR C OMPUTING THE DEDUCTION U/S 10A OF THE ACT. GROUND OF APPEAL NO.3 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 10. AS REGARDS GROUND NO.4(A), BRIEF FACTS ARE THAT THE ASSESSEE HAD THREE STPI UNITS WHICH ARE ALL ENTITLE D FOR BENEFIT U/S 10A OF THE ACT. OUT OF THESE THREE, ONE UNIT IS IN MUMBAI ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 8 OF 26 WHILE THE TWO OTHER UNITS ARE AT HYDERABAD. ONE OF THE UNIT, HYDERABAD-A WAS MAKING PROFIT WHILE THE OTHER UNIT I.E HYDERABAD-B WAS MAKING LOSS. THE AO SET OFF THE LOS S OF THE HYDERABAD UNIT-B AGAINST THE PROFITS OF THE OTHER T WO ELIGIBLE UNITS FOR COMPUTING THE DEDUCTION U/S 10A OF THE AC T. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) STATING THAT AS PER THE DIRECTION OF THE HON'BLE SUPREME COURT IN T HE CASE OF CIT VS. YOKOGAWA INDIA LTD IN CIVIL APPEAL NO.8498 OF 20 13, THE PROFIT OF EACH UNIT IS TO BE COMPUTED ON A STAND ALONE BAS IS. THE CIT (A) HOWEVER, HELD THAT IN THE CASE OF THE ASSESSEE, ALL THE THREE UNITS ARE HAVING EXPORT ACTIVITIES AND THEREFORE, THERE I S NO REASON WHY EACH UNIT IS TO BE CONSIDERED SEPARATELY FOR THE PU RPOSE OF 10A BENEFIT. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US. 11. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT EACH OF THE ELIGIBLE UNIT IS ENTITLED TO CLAIM DEDU CTION U/S 10A OF THE ACT IN ACCORDANCE WITH THE DIRECTIONS OF THE HO N'BLE SUPREME COURT IN THE CASE OF YOKOGAWA INDIA LTD (CITED SUPRA ) AND THEREFORE, THE PROFITS AND GAINS OF EACH OF THE UNI T HAVE TO BE COMPUTED SEPARATELY ON A STAND ALONE BASIS AND THE LOSS OF THE ELIGIBLE UNIT HYDERABAD-B SHOULD BE ALLOWED TO BE C ARRIED FORWARD FOR THE NEXT A.Y. HE PLACED RELIANCE UPON THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF YOKOGAWA INDIA LTD (SUPRA). 12. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE CIT (A). 13. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE BEFORE THE HON'BL E SUPREME ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 9 OF 26 COURT IN THE CASE OF YOKOGAWA INDIA LTD (SUPRA) WAS WITH REGARD TO THE TRUE AND CORRECT MEANING OF THE PROVISIONS O F SECTION 10A OF THE I.T. ACT. THE HON'BLE SUPREME COURT AT PARA NO. 3 HAS FRAMED THE FOLLOWING SPECIFIC QUESTIONS THEREUNDER FOR ADJ UDICATION. (I) WHETHER SECTION 10A OF THE ACT IS BEYOND THE PURVIEW OF THE COMPUTATION MECHANISM OF TOTAL INCOME AS DEFINED UNDER THE ACT. CONSEQUENTLY, IS THE INCOME OF A SECTION 10A UNIT REQUIRED TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME OF THE ASSESSEE? (II) WHETHER THE PHRASE TOTAL INCOME IN SECTION 10A OF THE ACT IS AKIN AND PARI MATERIA WITH THE SAID EXPRESSION AS APPEARING IN SECTION 2(45) OF THE ACT? (III) WHETHER EVEN AFTER THE AMENDMENT MADE WITH EFFECT FROM 1.04.2001, SECTION 10A OF THE ACT CONTINUES TO REMAIN AN EXEMPTION SECTION AND NOT A DEDUCTION SECTION? (IV) WHETHER LOSSES OF OTHER 10A UNITS OR NON 10A UNITS CAN BE SET OFF AGAINST THE PROFITS OF 10A UNITS BEFORE DEDUCTIONS UNDER SECTION 10A ARE AFFECTED? (V) WHETHER BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF 10A UNITS OR NON 10A UNITS CAN BE SET OFF AGAINST THE PROFITS OF ANOTHER 10A UNITS OF THE ASSESSEE. THUS, IT IS SEEN THAT QUESTION NO.4 REFERS TO THE L OSSES OF OTHER 10A UNITS OR NON 10A UNITS. IT MEANS THAT THE LOSSE S OF ELIGIBLE UNITS CANNOT BE SET OFF AGAINST THE PROFITS OF OTHE R ELIGIBLE UNITS BEFORE ALLOWING THE DEDUCTION U/S 10A OF THE ACT. T HE HON'BLE SUPREME COURT, AFTER DELIBERATION OF THE PROVISIONS OF THE ACT, HAS AT PARAS 16 TO 18 HAS HELD AS UNDER: ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 10 OF 26 16. FROM A READING OF THE RELEVANT PROVISIONS OF SECTION 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLATED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON-ELIG IBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCULAR NO. 794 DATED 9.8.2000 WHICH STATES IN PARAGRAPH 15.6 THAT, 'THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZONES OR 100% EXPO RT ORIENTED UNDERTAKINGS, AS THE CASE MAY BE, AND THIS SHALL NOT HAVE ANY MATERIAL RELATIONSHIP WITH THE O THER BUSINESS OF THE ASSESSEE OUTSIDE THESE ZONES OR UNI TS FOR THE PURPOSES OF THIS PROVISION.' 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIR ST PROVISO TO SECTIONS 10A(1); 10A (1A) AND 10A (4)] THAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BEN EFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS A LSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO. 794 DATED 09.08.2000) UNDERSTOOD THE SITUATION , IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUC TION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIG IBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THEREFORE, IMMEDIATELY AFTER THE STAGE OF DETERMINA TION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGA TE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FO R SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATIO N. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOT AL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION 'TOTAL INCOME OF THE ASSESSEE' IN SECTIO N 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECT ION ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 11 OF 26 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION 'TOTAL INCOME OF THE ASSESSEE' IN SECTION 10A AS 'TOTAL INCOME OF THE UNDERTAKING'. 18. FOR THE AFORESAID REASONS WE ANSWER THE APPEALS AND THE QUESTIONS ARISING THEREIN, AS FORMULATED AT THE OUTSET OF THIS ORDER, BY HOLDING THAT THOUGH SECTIO N 10A, AS AMENDED, IS A PROVISION FOR DEDUCTION, THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GRO SS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAP TER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION O F THE TOTAL INCOME UNDER CHAPTER VI. ALL THE APPEALS SHAL L STAND DISPOSED OF ACCORDINGLY. 14. THUS, IT CAN BE SEEN THAT THE PROFITS AND GAINS OF EACH OF THE ELIGIBLE UNIT IS TO BE COMPUTED INDEPENDENTL Y FOR ALLOWING DEDUCTION U/S 10A OF THE ACT WITH REGARD TO AN UNDE RTAKING. THEREFORE, GROUND NO.4(A) IS ALLOWED AND GROUND NO. 4(B) IS REMANDED TO THE FILE OF THE AO FOR RE CONSIDERATION IN ACCORDANCE WITH LAW AND TO ALLOW THE CARRY FORWARD OF THE LOSS ES. 15. IN THE RESULT, GROUND NO.4 (A) IS ALLOWED AND G ROUND NO.4(B) IS ALLOWED FOR STATISTICAL PURPOSES. 16. AS REGARDS GROUND OF APPEAL NO.5, THE ASSESSEE HAD ENTERED INTO AN INTERNATIONAL TRANSACTION WITH ITS AE FOR PROVIDING INFORMATION TECHNOLOGY SOFTWARE SERVICES AND I.T. E NABLED SERVICES. DURING THE PROCEEDINGS U/S 92CA OF THE AC T, THE TPO OBSERVED THAT THE TNMM IS THE MOST APPROPRIATE METH OD FOR DETERMINING THE ALP OF THE ITES SEGMENT OF THE ASSE SSEE. THE TPO REJECTED THE COMPARABLES SELECTED BY THE ASSESS EE AND ADOPTED CERTAIN OTHER COMPARABLES AND ARRIVED AT TH E MARGIN OF THE COMPARABLES AT RS.29.16% AS AGAINST THE ASSESSEE S MARGIN OF ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 12 OF 26 RS.22.20%. HE ACCORDINGLY PROPOSED THE ADDITION OF RS.13,06,52,257. AGGRIEVED THE ASSESSEE PREFERRED A N APPEAL BEFORE THE CIT (A) CHALLENGING THE COMPARABILITY OF THE FOLLOWING 5 COMPANIES. (I) MOLD-TEK SOLUTIONS LTD (II) ECLERX SERVICES LTD (III) CORAL HUB LTD (IV) GENESYS INTERNATIONAL CORPORATION LTD (V) ACCENTIA TECHNOLOGY LTD 17. THE CIT (A) CONFIRMED THE COMPARABILITY OF ALL THESE 5 COMPANIES AGAINST WHICH THE ASSESSEE IS IN APPEAL B EFORE US. 18. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COMPARABILITY OF THESE 5 COMPANIES HAD ARISEN I N THE ASSESSEES OWN CASE FOR THE A.Y 2007-08 AND ALSO IN THE CASE OF THE AMALGAMATED COMPANY FOR THE A.Y 2008-09 AND IN B OTH THE CASES, THE TRIBUNAL HAD DIRECTED THE EXCLUSION OF T HESE COMPANIES FROM THE FINAL LIST OF COMPARABLES. COPIES OF THE S AID ORDERS HAVE BEEN FILED BEFORE US. 19. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 20. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNAL IN ITA NO.221/HYD/2014 AND 301/HYD/2014 HAD CONSIDERED THE COMPARABILITY OF ACCENTIA TECHNOLOGIES LTD, MOLD-TE K SOLUTIONS LTD AND ECLERX SERVICES LTD AS NOT COMPARABLE TO TH E ASSESSEE. FURTHER, IN THE CASE OF THE AMALGAMATED COMPANY ALSO , THE ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 13 OF 26 COMPARABILITY OF ALL THE 5 COMPANIES HAS BEEN CONSI DERED AND IT HAS BEEN HELD THAT THEY ARE NOT COMPARABLE TO THE A SSESSEE. FOR THE SAKE OF CLARITY AND READY REFERENCE, THE DECISI ON IN THE CASE OF THE AMALGAMATED COMPANY FOR THE VERY SAME A.Y 2008-0 9 ARE REPRODUCED HEREUNDER: I. ACCENTIA TECHNOLOGIES LIMITED (ACCENTIA): 10. IT WAS THE SUBMISSION THAT THERE WAS AN EXTRAORDINARY SITUATION DURING THE YEAR. ACCENTIA'S ANNUAL REPORT FOR THE FINANCIAL YEAR 2007-08 CLEARL Y SHOWS BUSINESS RESTRUCTURING/PECULIAR ECONOMIC CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER CONTENDED THAT THE EMPLOYEE COST OF ACCENTIA IS ONLY 16.81 % OF TOTAL OPERATING COST. T HE RELEVANT EMPLOYEE COST CALCULATION OF ACCENTIA WAS GIVEN BELOW TO SUBSTANTIATE THE CONTENTION: PARTICULARS AMOUNT (RS.) REFERENCE TOTAL OPERATING COST AS PER TPOS ORDER(A) 34,93,32,496 AS PER TPOS ORDER EMPLOYEE COST: SALARY & ALLOWANCE TO STAFF 5,48,44,678 AR PG.58 CONTRIBUTION TO ESI 38,507 AR PG.58 CONTRIBUTION TO PF 5,76,925 AR PG. 58 STAFF WELFARE EXPENSES 17,08,901 AR PG.58 TOTAL EMPLOYEE COST (B) 5,71,69,011 EMPLOYEE COST % 16.37% 10.1. THE TPO DID NOT AGREE TO THE CONTENTIONS OF AS SESSEE WITH REGARD TO EXTRAORDINARY BUSINESS OPERATIONS. ASSESSE E DID NOT RAISE ITS CONTENTIONS WITH REGARD TO EMPLOYEE COST F ILTER BEFORE THE TPO. LD. CIT(A) HAS REJECTED THE CONTENTION OF A SSESSEE WITH REGARD TO ACCENTIA'S EXTRAORDINARY SITUATION. WITH R EGARD TO EMPLOYEE COST, LD. CIT(A) HAS REJECTED THE CONTENTIO N OF ASSESSEE AS IT WAS NOT RAISED BEFORE THE TPO. ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 14 OF 26 10.2. ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRECEDENTS FOR REJECTION OF ACCENTIA AS A COMPARABLE COMPANY: SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. - IT(TP )A NO. 1316/BANG/2012; VODAFONE INDIA SERVICES PRIVATE LTD. [FORMERLY KNOW N AS 3 GLOBAL SERVICES PRIVATE LTD, ('GSPL'/'3GSPL')] (ITA NO. 7514/MUM/2013); HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. ITA.NO.1647/HYD/2012; HYUNDAI MOTORS INDIA ENGINEERING P. LTD. HYDERABAD - 152/ITD/112]; CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD VS. DCIT (LNT. TAXATION) (ITA NO. 1961/HYD/2011) (HYD. ITAT); ZAVATA INDIA PRIVATE LIMITED VS. DCIT (ITA NO. 1781/ HYD/ 2011) (HYD. ITAT); COGNIZANT TECHNOLOGY SERVICES PVT. LTD., VS. ACIT (I TA. NOS. 2106 & 1864/HYD/2011) (HYD. ITAT); IN VIEW OF THE ABOVE, ASSESSEE REQUESTS TO EXCLUDE A CCENTIA TECHNOLOGIES LIMITED AS A COMPARABLE. 10.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE ORDERS OF EARLIER COORDINATE BENCHES. AS FAR AS TH IS COMPARABLE IS CONCERNED, THE SAME HAS BEEN DECIDED BY THE CO-ORDINAT E BENCH IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING P. LTD. , VS. ITO IN ITA NO. 1850/HYD/2012 (AY. 2008-09) DT. 21-02-2014, WHER EIN THE CO-ORDINATE BENCH HELD AS UNDER: I. ACCENTIA TECHNOLOGIES LTD. (SEG.) THIS WAS CONSIDERED AS A COMPARABLE BY THE TPO AND LISTED AT SL.NO.1 OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE FACT THAT THERE ARE EXTRA ORDINARY EVENTS THAT OCCURRED DURING THE PREVIOUS YEAR IN TH IS COMPANY. OUR ATTENTION WAS DRAWN TO THE ANNUAL REPORT OF THIS CO MPANY FOR THE A.Y. 2007-08 WHEREIN THE FACT THAT THIS COMPANY HAD ACQU IRED THUNGA SOFTWARE PVT. LTD., GSR PHYSICIANS BILLING SERVICES INC., GSR SYSTEMS INC. AND DENMED INC. WAS MENTIONED. OUR ATTENTION W AS ALSO DRAWN TO THE DECISION OF THE HYDERABAD ITAT BENCH IN THE CAS E OF CAPITAL IQ INFORMATION SYSTEMS INDIA ITA NO.1316/BANG/2012 PVT . LTD. V. DCIT [2013] 32 TAXMAN.COM 21 (HYD. TRIB). IN THE AFORESA ID DECISION, THE HYDERABAD BENCH OF THE TRIBUNAL HAD TO DEAL WITH A CASE OF DETERMINATION OF ALP IN THE CASE OF AN ASSESSEE WHO WAS PROVIDING ITES BUSINESS SUPPORT SERVICES FOR THE A.Y. 2007-08. THE TPO HAD CONSIDERED ACCENTIA TECHNOLOGIES LTD. AS A COMPARABLE. THE DRP HOWEVER HELD THAT ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 15 OF 26 THE SAID COMPANY CANNOT BE COMPARED AS A COMPARABLE OWING TO EXTRA ORDINARY EVENTS THAT TOOK PLACE DURING THE PREVIOUS YEAR. THE TRIBUNAL UPHELD THE ORDER OF THE DRP OBSERVING AS FOLLOWS :- 'I. ACCENTIA TECHNOLOGIES LTD. 10. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE BECAUSE OF UNCOMPARABLE FINANCIAL RESULT S ARISING OUT OF AMALGAMATION IN THE COMPANY. IN THIS REGARD, THE ASSESSEE HAS RE LIED UPON THE ORDER OF THE DRP FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEE'S OWN CASE. IT IS SEEN THAT THE DRP WHILE CONSIDERING SIMILAR OBJECTION PLACED BY THE ASSESSE E IN THE CASE OF ANOTHER COMPANY, VIZ. MOLD TEK TECHNOLOGIES LTD., IN THE PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2008-09, HAS OBSERVED IN THE FOLLOWING MANNER- '17.5. IN ADDITION TO THE ABOVE, THE DIRECTOR'S REP ORT OF THE COMPANY FOR THE FY 2007- 08 REVEALED THE MERGER AND THE DEMERGER. A COMPANY KNOWN AS TECHMEN TOOLS PVT. LTD. HAD AMALGAMATED WITH MOLD-TEK TECHNOLOGIES LTD . WITH EFFECT FORM 1ST OCTOBER, 2006. THERE WAS A DE- MERGER OF PLASTIC DIVISION OF THE COMPANY AND THE RESULTING COMPANY IS KNOWN AS MOLDTEK PLASTICS LIMITED. THE D E-MERGER FROM THE MOLDTEK TECHNOLOGIES TOOK PLACE WITH EFFECT FROM 1ST APRIL, 2007. THE MERGER AND THE DE- MERGER NEEDED THE APPROVAL OF THE HON'BLE HIGH COUR T OF ANDHRA PRADESH AND ALSO THE APPROVAL OF THE SHAREHOLDERS. THE SHAREHOLDERS OF THE COMPANY GAVE APPROVAL FOR THE MERGER AND THE DE-MERGER ON 25.01.2008 AND THE HON'BLE HIGH COURT OF ANDHRA PRADESH HAD APPROVED THE MERGER AND DE-MERGE R ON 25TH JULY, 2008. SUBSEQUENTLY, THE ITA NO.1316/BANG/2012 ACCOUNTS OF MOLDTEK TECHNOLOGIES FOR FY 2007-08 WERE REVISED. ON A PERUSAL OF THE ANNUAL RE PORT IT IS NOTICED THAT TECKMEN TOOLS PVT. LTD. AND THE PLASTIC DIVISION OF THE COM PANY WERE DEMERGED AND THE RESULTING COMPANY WAS NAMED AS MOLDTEK PLASTICS LTD . THE KPO BUSINESS REMAINED WITH THE COMPANY. A PERUSAL OF THE ANNUAL REPORT RE VEALED THAT TO GIVE EFFECT TO THE MERGER AND DEMERGER, THE FINANCIAL STATEMENTS WERE REVISED AND RESTATED AFTER SIX MONTHS FORM THE END OF THE FINANCIAL YEAR 31.3. 200 8. THE ASSESSEE FILED FORM NO.21 UNDER THE COMPANIES ACT WITH THE REGISTRAR OF COMPA NIES ON 26TH AUGUST, 2008. THUS THE EFFECTIVE DATE OF THE SCHEME OF MERGER AND DEMERGER WAS 26TH AUGUST, 2008. THE ANNUAL REPORT SUPPORTED THE ARGUMENT OF T HE ASSESSEE THAT THERE WERE MERGER AND DEMERGER IN THE FINANCIAL YEAR AND IT WA S AN EXCEPTIONAL YEAR OF PERFORMANCE AS FINANCIAL STATEMENTS WERE REVISED BY THIS COMPANY MUCH AFTER THE CLOSURE OF THE PREVIOUS YEAR. THE PANEL AGREES WITH THE CONTENTION OF THE ASSESSEE THAT IT IS AN EXCEPTIONAL YEAR HAVING SIGNIFICANT I MPACT ON THE PROFITABILITY ARISING OUT OF MERGER AND DEMERGER.' 11. ON CAREFUL CONSIDERATION OF THE MATTER, WE ALSO AGREE WITH THE AFORESAID VIEW OF THE DRP THAT EXTRA-ORDINARY EVENT LIKE MERGER AND D E-MERGER WILL HAVE AN EFFECT ON THE PROFITABILITY OF THE COMPANY IN THE FINANCIAL Y EAR IN WHICH SUCH EVENT TAKES PLACE. IT IS THE CONTENTION OF THE ASSESSEE THAT IN CASE O F THE AFORESAID COMPANY, THERE IS AMALGAMATION IN DECEMBER, 2006, WHICH HAS IMPACTED THE FINANCIAL RESULT. THIS FACT HAS TO BE VERIFIED BY THE TPO. IF IT IS FOUND UPON SUCH VERIFICATION THAT THE ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 16 OF 26 AMALGAMATION IN FACT AHS TAKEN PLACE, THEN THE AFOR ESAID COMPARABLE HAS TO BE EXCLUDED.' WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNS EL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE RATIO LAID DOWN BY THE HYDERABAD BENCH OF THE ITAT IS SQUARELY APPLICABLE TO THE PRESENT CASE ALSO. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF SYMPHONY MARKETING SO LUTIONS INDIA(P) LTD (SUPRA) BY THE BANGALORE BENCH. IT IS CLEAR THAT DU RING THE PREVIOUS YEAR THERE WERE EXTRA ORDINARY EVENTS THAT TOOK PLACE IN THIS COMPANY WHICH WARRANTS EXCLUSION OF THIS COMPANY AS A COMPARABLE. WE THEREFORE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARA BLE. 10.4. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE DIRECT THE AO/TPO TO EXCLUDE ACC ENTIA TECHNOLOGIES LIMITED FROM THE LIST OF COMPARABLES. II. CORAL HUB LIMITED ('CORAL') FORMERLY KNOWN AS VISHAL INFORMATION TECHNOLOGIES L IMITED : 11. IT WAS SUBMITTED THAT CORAL HUB LIMITED (FORMERLY KNOWN AS VISHAL INFORMATION TECHNOLOGIES LIMITED) I S FUNCTIONALLY DIFFERENT AND OPERATES ON A DIFFERENT B USINESS MODEL. IT PRIMARILY OUTSOURCES ITS WORK TO THE VENDO R'S VIS-A- VIS THE ASSESSEE WHICH CARRIES OUT THE ENTIRE WORK ON ITS OWN. THE RELEVANT DETAILS ARE TABULATED BELOW: COMPUTATION OF OUTSOURCING COST TO TOTAL COST OF C ORAL: PARTICULARS AMOUNT (RS.) REFERENCE SALARY COST 21,68,01,923 AR PG. 84 TOTAL COST 25,07,83,662 AS PER TPOS ORDER PG.100 11.1. EVEN THOUGH ASSESSEE DID NOT RAISE OBJECTIONS ON CORAL BEFORE TPO, IT HAS RAISED GROUND ON CORAL BEFOR E LD. CIT(A). HOWEVER, LD. CIT(A) HAS REJECTED THE CONTENTI ONS OF ASSESSEE AS IT WAS NOT RAISED BEFORE THE TPO. 11.2. ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDI CIAL PRECEDENTS FOR REJECTION OF CORAL: UNITED HEALTH GROUP INFORMATION SERVICES PVT. LTD. [ITA NO.6312/DEL/2012/AY 2008-09]; ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 17 OF 26 TECHBOOKS INTERNATIONAL PVT. LTD. [ITA NO.722/DEL/20 14/AY 2009- 10]; BNY MELLON INTERNATIONAL OPERATIONS (INDIA) PVT. LT D. [ITA NO.2380/PN/2012/AY 2008-09]; MAERSK GLOBAL SERVICE CENTER (INDIA) P. LTD. [ITA NO.3774/MUM/2011/AY 2005-06]; IN VIEW OF THE ABOVE, ASSESSEE REQUESTS TO EXCLUDE C ORAL AS A COMPARABLE. 11.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS RELIED ON. AS FAR AS THIS COMPARA BLE IS CONCERNED, THE SAME HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF DELHI IN THE CASE OF UNITED HEALTH GROUP INFORMATIO N SERVICES PVT. LTD. VS. ACIT [ITA NO.6312/DEL/2012-AY 2008-09] DT. 28-08-2014, WHEREIN THE CO-ORDINATE BENCH HELD AS UNDER: VISHAL INFORMATICS 12.1. THE TPO INCLUDED THIS COM PANY IN THE LIST OF COMPARABLES BY NOTICING THAT IT WAS ENGAGED IN P ROVIDING BPO SERVICES. THE ASSESSEE FAILED TO CONVINCE HIM AND T HE DRP THAT IT WAS INCOMPARABLE. 12.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT IS MAINLY ENGAGED IN E-PUBLISHING BUSINESS. IT HAS MORE THAN 10,000 CLASSIC BOOKS TO ITS CREDIT WHICH ARE A LSO CONVERTED INTO LARGE FONT TITLES FOR VISUALLY CHALLENGED. APA RT FROM E- PUBLISHING, THIS COMPANY IS ALSO ENGAGED IN DOCUMEN TS SCANNING & INDEXING. IT CAN BE SEEN FROM THE FINANCIAL RESUL TS OF THIS COMPANY THAT BOTH THE SEGMENTS VIZ., E- PUBLISHING AND DOCUMENTS SCANNING ETC. HAVE BEEN COMBINED AND THERE ARE NO S EPARATE FINANCIAL RESULTS IN RESPECT OF DOCUMENTS SCANNING WORK, WHICH MAY BE COMPARABLE WITH THE ASSESSEE TO SOME EXTENT. AS THE ASSESSEE IS NOT ENGAGED IN ANY E-PUBLISHING BUSINES S AND THE FINANCIALS GIVEN BY THIS COMPANY ARE ON CONSOLIDATE D BASIS, WE DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COM PARABLES. THE ASSESSEE SUCCEEDS. 11.4. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE DIRECT THE AO/TPO TO EXCLUDE CORA L HUB LIMITED (FORMERLY KNOWN AS VISHAL INFORMATION TECHN OLOGIES LIMITED) FROM THE LIST OF COMPARABLES. ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 18 OF 26 III. ECLERX SERVICES LIMITED ('ECLERX') : 12. IT WAS SUBMITTED THAT THIS COMPANY IS FUNCTIONAL LY DIFFERENT AS IT IS ENGAGED IN PROVIDING HIGH END SERV ICES IN THE NATURE OF KPO ACTIVITIES LIKE DATA ANALYTICS, AND CU STOMIZED PROCESS SOLUTIONS. THESE INCLUDE DATA ANALYTICS, OPE RATIONS MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANAG EMENT AND REPORTING SERVICES. FURTHER THERE WAS AN EXTRAO RDINARY SITUATION OF MERGER DURING THE YEAR. ECLERX ACQUIRED UK-BASED IGENTICA TRAVEL SOLUTIONS LIMITED ON JULY 27,2007. T HE INTEGRATION PROCESS WAS ON TRACK AS OF MARCH 2008. THIS FACT WAS EVIDENT AS PER PAGE NOS. 14, 18 & 19 OF ANNUAL R EPORT OF ECLERX. THE TPO DID NOT AGREE TO THE CONTENTION OF A SSESSEE THAT ECLERX IS FUNCTIONALLY DIFFERENT AND INVOLVED IN HIGH END KPO SERVICES. HOWEVER, ASSESSEE HAS NOT RAISED CONTE NTION ON EXTRAORDINARY SITUATION BEFORE TPO. LD. CIT(A) RE JECTED THE CONTENTIONS OF ASSESSEE ON FUNCTIONAL DIFFERENCE, H OWEVER HAS NOT COMMENTED ON CONTENTION OF ASSESSEE WITH REGARD T O EXTRAORDINARY SITUATION OF ECLERX. 12.1. ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDI CIAL PRECEDENTS FOR REJECTION OF ECLERX AS A COMPARABLE C OMPANY: MAERSK GLOBAL CENTRES (INDIA) PRIVATE LIMITED VS. AC IT, MUMBAI (I.T.A. NO.7466/MUM/2012/AY 2008-09); UNITED HEALTH GROUP INFORMATION SERVICES PVT. LTD. [ITA NO.6312/DEL/2012/AY 2008-09]; CALIBRATED HEALTHCARE SYSTEMS INDIA PVT. LTD. [ITA NO.5271/DE1/2012/AY 2007-08]; HYUNDAI MOTORS INDIA ENGINEERING P. LTD. [ITA NO. 1850/HYD/2012/AY 2008-09] ACCORDINGLY, ASSESSEE REQUESTS TO EXCLUDE ECLERX SER VICES LIMITED AS A COMPARABLE. 12.2. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF EARLIER ASSESSMENT YEARS. AS FAR AS THIS COMPARABLE IS CONCERNED, THE SAME HAS BEEN DECIDED BY THE CO-ORDINAT E BENCH IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING P. LTD. , VS. ITO IN ITA NO. 1850/HYD/2012 (AY. 2008-09) DT. 21-02-2014, WHER EIN THE CO-ORDINATE BENCH HELD AS UNDER: IV ECLERX SERVICES LTD. : THIS COMPANY IS LISTED AT SL.NO.10 IN THE LIST OF C OMPARABLE COMPANIES CHOSEN BY THE TPO. IT IS THE STAND OF THE ASSESSEE THAT THIS COMPANY ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 19 OF 26 OFFERS SOLUTIONS THAT INCLUDE DATA ANALYTICS, OPERA TIONS MANAGEMENT, AUDITS AND RECONCILIATION AND THEREFORE HAS TO BE C LASSIFIED AS HIGH END KPO. IN SUPPORT OF THE STAND OF THE ASSESSEE, EXTRA CTS FROM THE ANNUAL REPORT OF THIS COMPANY HAVE BEEN POINTED OUT. IT HA S FURTHER BEEN SUBMITTED THAT EXTRA ORDINARY EVENTS AND PECULIAR C IRCUMSTANCES PREVAIL IN THE CASE OF THE ASSESSEE IN AS MUCH AS THIS COMP ANY ACQUIRED A UK BASED COMPANY WHICH HAS SIGNIFICANTLY CONTRIBUTED T O THE INCREASE IN THE CUSTOMER AND REVENUE BASE OF THE COMPANY. THIS TRIB UNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. (SUP RA) HAD AN OCCASION TO DEAL WITH COMPARABILITY OF THIS COMPANY IN THE CASE OF AN ITES COMPANY SUCH AS THE ASSESSEE AND THE TRIBUNAL HELD AS FOLLO WS:- '14. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEI NG TAKEN AS COMPARABLE MAINLY ON THE GROUND THAT IT WAS HAVING A SUPERNORMAL PROF IT OF 89%, AND AS SUCH IT CANNOT BE TAKEN AS A COMPARABLE IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE M/S. TEVA INDIA LTD. (SUPRA). THAT APAR T, RELYING UPON THE ANNUAL REPORT OF THE COMPANY, THE LEARNED AUTHORISED REPRESENTATI VE FOR THE ASSESSEE HAS CONTENDED THAT THAT THE CONCERNED COMPANY IS ENGAGE D IN PROVIDING KNOWLEDGE PROCESS OUTSOURCING(KPO) SERVICES. 15. ON CONSIDERING THE OBJECTIONS OF THE ASSESSEE I N RELATION TO THIS COMPANY, WE ACCEPT THE CONTENTION OF THE ASSESSEE THAT THIS COM PANY CANNOT BE TAKEN AS A COMPARABLE BOTH FOR THE REASONS THAT IT WAS HAVING SUPERNORMAL PROFIT AND IT IS ENGAGED IN PROVIDING KPO SERVICES, WHICH IS DISTINC T FROM THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE.' WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DECISIO N OF THE HYDERABAD BENCH REFERRED TO ABOVE, THIS COMPANY CANNOT BE REG ARDED AS A COMPARABLE FOR THE REASON THAT IT WAS HAVING EXTRAO RDINARY EVENT AND SUPER NORMAL PROFITS. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA(P) LTD (SUPRA) B Y THE BANGALORE BENCH. 12.3. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE DIRECT THE AO/TPO TO EXCLUDE ECLE RX SERVICES LIMITED FROM THE LIST OF COMPARABLES. IV. MOLD-TEK TECHNOLOGIES LIMITED ('MOLDTEK') : 13. IT WAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN PROVIDING ENGINEERING DESIGN SERVICES FOR CONSTRUCTION OF BUIL DINGS BY USING DESIGN TOOLS LIKE CADI CAM, STADD PRO BY EMPLOY ING HIGHLY SKILLED SOFTWARE ENGINEERS FOR THE PURPOSE. T HESE SERVICES ARE IN NATURE OF KPO AND SHARP CONTRAST TO THE NATURE OF WORK UNDERTAKEN BY ASSESSEE. FURTHER, TECK -MEN ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 20 OF 26 TOOLS PVT. LTD. WAS AMALGAMATED WITH THE MOLDTEK WIT H EFFECT FROM 01 OCTOBER, 2006. THERE WAS A DE-MERGER OF PLASTIC DIVISION OF MOLD-TEK WHICH HAS BEEN NAMED AS MOLD TEK PLASTICS LIMITED AFTER DE-MERGER. THIS DE-MERGER FROM THE MOLD TEK TOOK PLACE WITH EFFECT FROM 01 APRIL. 2007 . AS PER PAGE NOS. 9, 10,41 & 42 OF THE ANNUAL REPORT SHOWS THAT THERE WERE MERGERS AND DEMERGERS DURING THE YEAR UNDER CONSIDERATION. 13.1. THE TPO DID NOT AGREE TO THE CONTENTIONS OF ASSESSEE THAT MOLDTEK FUNCTIONALLY DIFFERENT AND INV OLVED IN HIGH END KPO SERVICES. HOWEVER, ASSESSEE HAS NOT RAI SED CONTENTION ON EXTRAORDINARY SITUATION BEFORE TPO. L D. CIT(A) REJECTED THE CONTENTIONS OF ASSESSEE ON FUNCTIONAL D IFFERENCE, HOWEVER HAS NOT COMMENTED ON CONTENTION OF ASSESSEE WITH REGARD TO EXTRAORDINARY SITUATION OF MOLDTEK. 13.2. IN THIS REGARD, ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRECEDENTS FOR REJECTION OF MOLDT EK AS A COMPARABLE COMPANY ON ACCOUNT OF FUNCTIONALLY DIFFE RENT AND EXTRAORDINARY SITUATION: MAERSK GLOBAL CENTRES (INDIA) PRIVATE LIMITED VS. AC IT, MUMBAI (ITA. NO.7466/MUM/2012/AY 2008-09); SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. - IT(TP )A NO. 1316/BANG/2012); CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., HY DERABAD (ITA NO. 1961/HYD/2011); IN VIEW OF THE ABOVE EXPLANATIONS AND SUBMISSIONS, A SSESSEE PRAYS TO EXCLUDE MOLD-TEK TECHNOLOGIES LIMITED FROM THE LIST OF COMPARABLE COMPANIES. 13.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND P ERUSED THE ORDERS RELIED ON. AS FAR AS THIS COMPARABLE IS CONC ERNED, THE SAME HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF BANGAL ORE IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD., VS. ITO IN IT(TP)A NO. 1316/BANG/2012 (AY. 2008-09) DT.14-08-2 013, WHEREIN THE CO-ORDINATE BENCH HELD AS UNDER: (8) MOLD-TEK TECHNOLOGIES LTD. 25. THIS COMPANY IS LISTED AT SL.NO.16 OF THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE SUBMISSION OF THE ASSESSEE BEFORE US IS THAT IT IS IN THE BUSINESS OF ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 21 OF 26 KNOWLEDGE PROCESS OUTSOURCING AND CANNOT BE CONSIDE RED AS A COMPARABLE. THE FUNCTIONAL PROFILE OF THIS COMPANY IS AS FOLLOWS:- AS PER THE ANNUAL REPORT FOR THE F.Y. 2007-08, THE COMPANY PRIMARILY OPERATES IN TWO BUSINESS SEGMENTS: PLASTIC DIVISION : THE PLASTIC DIVISION IS ENGAGED IN THE MANUFACTUR E OF TUBE & OILS, PAINTS, PET PRODUCTS, CONSUMER PRODUCTS, ETC. THE C OMPANY DEMERGED THE SAID SEGMENT EFFECTIVE 1 APRIL, 2007 AND TRANSFERRED THE BUSINESS UNIT TO THE COMPANY PLASTICS LT. THE EXTRACT FROM THE ANNUAL REPORT CON FIRMS THE FACT THAT THE COMPANY HAD RESTRUCTURED ITS OPERATIONS RESULTING IN DEMERG ING THE PLASTIC SEGMENT BUSINESS. INFORMATION TECHNOLOGY (IT) DIVISION : THE IT DIVISION (ALSO REFERRED TO AS THE KPO DIVISION BY THE COMPANY) OF THE COMPANY SPECIALIZES IN PROVIDING STRUCTURAL DESIGN AND DETAILING SERVICES WHICH CAN BE CATEGORIZED AS STRUCTURAL ENGINEERING SERVICES. THE STRUCTURAL ENGINEERING SERVICES PROVIDED BY THE IT DIVISION OF THE COMPANY CANNOT BE CLASSIFIED AS FALLING WITH THE SCOPE AND AMBIT OF ITES SERVICES. ON THE CONTRARY, THE SAID SERVICES WOULD FALL UNDER THE CA TEGORY OF ENGINEERING SERVICES. EXCERPTS FROM THE ANNUAL REPORT OF THE COMPANY PAGE 10 OF THE ANNUAL REPORT FOR THE FY 2007-08 CON TAINS THE FOLLOWING OBSERVATION REGARDING THE KPO DIVISION OF THE COMPANY: 'THE COMPANY HAS ACHIEVED ABOUT 56.49% GROWTH IN 200 7-08 TO REGISTER A TURNOVER OF RS.17.86 CRORE. THE COMPANY HAVING ESTABLISHED ITS CREDENTIA LS IN STRUCTURAL ENGINEERING SERVICES TO US CLIENTS IS DEVISING AGGRESSIVE MARKETING STRATEGY T O ACHIEVE RAPID GROWTH.' THIS COMPANY IS ALSO ENGAGED IN PROVIDING A HOST OF ENGINEERING SERVICES LIKE CIVIL AND STRUCTURAL ENGINEERING SERV ICES, MECHANICAL PRODUCT DESIGN, PLANT ENGINEERING, IT SERVICES AND GIS SERVICES. AS WE HAVE ALREADY SEEN, THIS COMPANY IS TO BE CLASSIF IED AS KPO AND CANNOT BE COMPARED WITH THE ASSESSEE. THE DECISION OF THE BANGALORE BENCH OF THE ITAT IN THE CASE OF FIRST AD VANTAGE OFFSHORE SERVICES LTD. (SUPRA) WHICH WE HAVE REFERR ED TO IN THE EARLIER PART OF THIS ORDER WILL CLEARLY APPLY TO TH IS COMPANY. WE THEREFORE DIRECT THIS COMPANY TO BE EXCLUDED FROM T HE LIST OF COMPARABLES. 13.4. RESPECTFULLY FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH, WE DIRECT THE AO/TPO TO EXCLUDE MOLD -TEK TECHNOLOGIES LIMITED FROM THE LIST OF COMPARABLES. V. GENESYS INTERNATIONAL CORPORATION LIMITED ('GENE SYS') : ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 22 OF 26 14. IT WAS SUBMITTED THAT THIS COMPANY IS FUNCTIONAL LY DIFFERENT AS IT IS ENGAGED IN THE BUSINESS OF PROVID ING GEOGRAPHICAL INFORMATION SERVICES COMPRISING PHOTOGRAMMETRY, REMOTE SENSING, CARTOGRAPHY, DATA CONVERSION SERVICES AS PER PAGE NO. 38 OF THE ANNUA L REPORT. FURTHER THERE WAS AN ABNORMAL GROWTH. GENESYS HAS WITNESSED ABNORMAL GROWTH OF AROUND 605.43% FOR ITS GEOSPATIAL SERVICES FOR THE FY 2007-08. THEREFORE, GENESYS NEEDS TO BE REJECTED. ASSESSEE DID NOT RAISE ITS CONTE NTIONS ON GENESYS BEFORE TPO. LD.CIT(A) DISREGARDED THE SUBMISSI ON OF ASSESSEE ON ABNORMAL GROWTH AND ON FUNCTIONAL DIFFE RENCE. 14.1. ASSESSEE REITERATES ITS CONTENTIONS. IN THIS REGARD, ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRECEDENTS FOR REJECTION OF GENESYS AS A COMPARABLE COMPANY ON ACCOUNT OF FUNCTIONALLY DIFFERENT AND ABNORMAL GROWTH: TNS INDIA PVT. LTD., HYDERABAD (ITA NO. 1875/HYD/2012) ; BP INDIA SERVICES PRIVATE LIMITED (ITA NO. : 6977/MU M/2012); SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. [IT(TP)A NO. 1316/BANG/2012)] ; HYUNDAI MOTORS INDIA ENGINEERING P. LTD. HYDERABAD (152/ITD/112); SAPIENT CORPORATION PVT. LTD. VS. DCIT [(2011) 11 TAX MANN.COM 69 (DEL. ITAT]; ITO VS. SAUNAY JEWELS (P.) LTD. [(2010) 42 SOT 4 (MUM. ITAT)]; IN VIEW OF THE ABOVE EXPLANATIONS AND SUBMISSIONS, A SSESSEE PRAYS TO EXCLUDE GENESYS INTERNATIONAL CORPORATION L TD., FROM THE LIST OF COMPARABLE COMPANIES. 14.2. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE ORDERS RELIED ON. AS FAR AS THIS COMPARABLE IS CONC ERNED, THE SAME HAS BEEN DECIDED BY THE CO-ORDINATE BENCH IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING P. LTD., VS. ITO IN ITA NO . 1850/HYD/2012 (AY. 2008-09) DT. 21-02-2014, WHEREIN THE CO- ORDINATE BENCH HELD AS UNDER: V. GENESYS INTERNATIONAL CORPORATION LTD. THIS COMPANY IS LISTED AT SL. NO.11 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCER NED, THE STAND OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTION ALLY NOT COMPARABLE AND THAT IT HAS A DIFFERENT EMPLOYEE SKILL SET AND THAT THIS COMPANY PERFORMS R&D SERVICES AND ALSO OWNS INTANGIBLES. TH IS COMPANY IS A ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 23 OF 26 GEOSPATIAL SERVICES CONTENT PROVIDER SPECIALISING I N LAND BASED TECHNOLOGIES. FROM THE NOTES TO ACCOUNTS OF THIS CO MPANY, IT IS SEEN THAT THIS COMPANY IS ENGAGED IN PROVIDING GEOGRAPHICAL I NFORMATION SERVICES COMPRISING OF PHOTOGRAMMETRY, REMOTE SENSING CARTOG RAPHY, DATA CONVERSION RELATED COMPUTED BASED SERVICES AND OTHE R RELATED SERVICES. FURTHER THE BUSINESS OF THIS COMPANY REQUIRES SKILL ED MANPOWER AND SCIENTISTS, CIVIL ENGINEERS, ETC. BESIDES THE ABOVE , THIS COMPANY ALSO CARRIES OUT R&D SERVICES AND OWN INTANGIBLES. THE A FORESAID FACTS, IN OUR VIEW, WILL TAKE THIS COMPANY OUT OF THE LIST OF COMPARABLES. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF SYMPHONY MARKET ING SOLUTIONS INDIA(P) LTD (SUPRA) BY THE BANGALORE BENCH. IN VIE W OF THE ABOVE, WE ARE OF THE VIEW THAT THIS COMPANY CANNOT BE REGARDE D AS A COMPARABLE AND DESERVES TO BE EXCLUDED FROM THE LIST OF COMPAR ABLES. 14.3. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE DIRECT THE AO/TPO TO EXCLUDE GENESYS INTERNATIONAL CORPORATION LTD., FROM THE LIST OF COM PARABLES . 21. RESPECTFULLY FOLLOWING ON THE SAME SET OF FACTS , WE DIRECT THAT THESE COMPANIES BE EXCLUDED FROM THE FINAL LIS T OF COMPARABLES. 22. THE GROUND NO.5(J) IS AGAINST NOT ALLOWING THE CLAIM OF THE WORKING CAPITAL ADJUSTMENT TO THE MARK-UP OF TH E COMPARABLE COMPANIES. WE FIND THAT THIS ISSUE ALSO HAS BEEN CO NSIDERED IN ITA NO.1143/HYD/2014 AT PARA 15 WHICH IS REPRODUCED HEREUNDER: 15. WORKING CAPITAL ADJUSTMENTS : GROUND NO. 4: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO ERRED AND THE LD. CIT(A) FURTHE R ERRED ON FACTS BY COMMITTING ARITHMETICAL ERROR WHILE CALCULATING THE AVERAGE RECEIVABLES OF THE TAX PAYE R TO ASCERTAIN THE WORKING CAPITAL ADJUSTMENT IN THE INS TANCE CASE AND THUS ERRED IN COMPUTING THE WORKING CAPITA L ADJUSTMENT TO THE MARK- UP OF THE COMPARABLE COMPAN IES. 15.1. ASSESSEE DURING THE COURSE OF ASSESSMENT PROC EEDINGS MADE SUBMISSION BEFORE THE TPO FOR GIVING WORKING CAPITAL ADJUSTMENT. ASSESSEE FILED DETAILED CALCULA TION FOR THE WORKING CAPITAL ADJUSTMENT BEFORE THE TPO. AS P ER THE ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 24 OF 26 CALCULATION PROVIDED BY ASSESSEE, THE WORKING CAPIT AL ADJUSTMENT WAS COMING TO 3.42%. THE TPO PROVIDED WORKING CAPITAL ADJUSTMENT OF 2.80% TO ASSESSEE. IT WAS SUBMITTED THAT THE TPO WHILE CALCULATING THE AVERAG E RECEIVABLES OF ASSESSEE COMMITTED ARITHMETICAL ERRO R RESULTING IN ERRONEOUS COMPUTATION OF WORKING CAPIT AL ADJUSTMENT. 15.2. LD. CIT(A) REJECTED THE CONTENTION OF ASSESSE E WITH REGARD TO CALCULATING THE AVERAGE RECEIVABLES AND R ELIED ON THE TPO'S ORDER IN CALCULATION OF THE WORKING CAPIT AL ADJUSTMENT. 15.3. ASSESSEE SUBMITTED THAT THE TPO AT THE TIME O F CALCULATING THE WORKING CAPITAL ADJUSTMENT CONSIDER ED THE AVERAGE RECEIVABLES AS RS. 47,37,03,063/- INSTEAD O F RS. 23,68,51,532/- AND THUS RESULTED IN ERRONEOUS COMPU TATION OF WORKING CAPITAL ADJUSTMENT. ONCE THE CORRECT AVE RAGE RECEIVABLES IS CONSIDERED FOR COMPUTING THE WORKING CAPITAL ADJUSTMENT, THE ALP AFTER WORKING CAPITAL ADJUSTMENT WILL COME TO 25.74% INSTEAD OF 26.36%, A S CALCULATED BY THE TPO AND THE MARGIN EARNED BY ASSE SSEE WOULD FALL WITHIN THE +/- 5% RANGE AS PROVIDED IN PROVISO SECTION 92C(2) OF THE ACT AND THUS THERE WILL BE NO TP ADJUSTMENT TO ASSESSEE. 15.4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF EARLIER ASSESSMENT YEARS. AS FAR AS W ORKING CAPITAL ADJUSTMENTS ARE CONCERNED, THERE IS NO DISP UTE ABOUT THE ADJUSTMENT PER SE. THE DISPUTE IS REGARDI NG THE WORKING OF ADJUSTMENT ONLY. AS REGARDS THE QUANTUM OF WORKING CAPITAL ADJUSTMENT, WE DIRECT THE AO/TPO TO VERIFY THE CORRECTNESS OF THE AMOUNT OF WORKING CAP ITAL ADJUSTMENT CLAIMED BY THE ASSESSEE AND THEN DECIDE AS PER FACTS AND LAW. THE GROUND IS ALLOWED ACCORDINGLY. 23. RESPECTFULLY FOLLOWING THE SAME, THIS GROUND OF APPEAL IS ALSO ALLOWED. 24. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. 25. AS REGARDS REVENUES GROUND OF APPEAL, THE REVE NUE HAS RAISED THE FOLLOWING GROUNDS: ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 25 OF 26 (I) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS IN LAW AND FATS OF THE CASE. (II) THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT COMMUNICATION CHARGES ARE TO BE EXCLUDED FROM EXPORT TURNOVER ONLY WHILE COMPUTING DEDUCTION U/S. L0A OF THE I.T. ACT AND NOT FROM TOTAL TURNOVER AS WELL AS EXPORT TURNOVER AS DEFINITION OF 'TURNOVER' IS NOT PROVIDED IN EXPLANATION-2 OF SEC.10A FOR EXCLUSION OF SUCH CHARGES FROM TOTAL TURNOVER ALSO. (III) THE LD. CIT(A) WHILE DIRECTING THE ASSESSING OFFICER NOT TO EXCLUDE COMMUNICATION CHARGES FROM EXPORT TURNOVER ON THE GROUND THAT THE SAME WERE ALREADY EXCLUDED BY THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME OUGHT TO HAVE DIRECTED THE AO TO ADD SUCH CHARGES TO THE TOTAL TURNOVER AS THE ASSESSEE HAS EXCLUDED THE SAID CHARGES FROM TOTAL TURNOVER ALSO WHILE COMPUTING THE DEDUCTION U/S. L0A. (IV) THE LD. CIT(A) ERRED IN HOLDING THAT FOREIGN EXCHANGE GAIN OF RS. 1,51,95,408/IS ENTITLED FOR DEDUCTION U/S. L0A OF THE LT. ACT DISREGARDING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINAL(191 TAXMAN81). 26. IN THE ASSESSEES APPEAL, WE HAVE ALREADY HELD THAT THE FOREIGN EXCHANGE GAIN IS PART OF THE OPERATING INCO ME OF THE ASSESSEE AND THEREFORE, TO BE INCLUDED BOTH IN EXPO RT AS WELL AS TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S 10A OF T HE ACT. THEREFORE, REVENUES APPEAL IS DISMISSED. ITA NOS 1144 AND 1145 OF 2014 BA CONTINUUM INDIA PRIVATE LTD HYDERABAD PAGE 26 OF 26 27. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL, 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 28 TH APRIL, 2017. VINODAN/SPS COPY TO: 1 M/S. B.A. CONTINUUM INDIA PVT. LTD, BUILDING NO.5 MIND SPACE, RAHEJA IT PARK, HI-TECH CITY, MADHAPUR, HYDERABAD 5 00081 2 ADD.CIT, RANGE-1, AAYAKAR BHAVAN, BASHEERBAGH, HY DERABAD 3 DY.CIT CIRCLE 1(2) B BLOCK, 7 TH FLOOR, IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 4 CIT (A)-II HYDERABAD 5 CIT I HYDERABAD 6 THE DR, ITAT HYDERABAD GUARD FILE BY ORDER