DIMENSION DATA INDIA LTD, MUMBAI V. ADDL CIT RG 2(1), MUMBAI

ITA 1155/MUM/2014

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1288 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 16-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANAND MOHAN LD
• Keywords: Related party transaction; Transfer pricing; Rectification of order; International transaction; Earning of tax free income; Initiation of penalty proceedings; Wholly owned subsidiary; TDS; Rule 8D; FORM 26AS
• Section: 271(1)(c); 143(3); 244A; 234B; 14A; 144C; 13; 92CA

Judgement Text

1 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE HONBLE SHRI VIKAS AWASTHY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) . / IT(TP)A NO.1155/MUM/2014 ( / ASSESSMENT YEAR:2009-10) DIMENSION DATA INDIA LIMITED UNIT NO.204-206, 2 ND FLOOR TRADE CENTRE BUILDING KAMALA MILLS COMPOUND S.B. MARG, LOWER PAREL, MUMBAI-400 013. / VS. ADDL. C IT RANGE NO.551, 5 TH FLOOR AAYKAR BHAVAN, M.K. ROAD CHURCHGATE, MUMBAI-400 020. !'./'./ PAN/GIR NO. AAACD-2145-G ( ! /APPELLANT ) : ($% ! / RESPONDENT ) !'/ APPELLANT BY : SHRI VIJAY MEHTA- LD. AR $% !'/ RESPONDENT BY : SHRI ANAND MOHAN-LD. DR / DATE OF HEARING : 24/09/2020 / DATE OF PRONOUNCEMENT : 17/12/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR (AY) 2009-10 CONTEST CERTAIN ADDITIONS/DISALLOWANCES AND CERTAIN TRANSFER PRICING (TP) ADJUSTMENTS MADE BY LEARNED A SSESSING OFFICER (AO) IN FINAL ASSESSMENT ORDER DATED 20/12/ 2013 PASSED U/S. 143(3) R.W.S. 144C (13) PURSUANT TO THE DIRECT IONS OF LEARNED 2 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 DISPUTE RESOLUTION PANEL-1, MUMBAI [DRP] U/S 144C ( 5) DATED 31/10/2013. THE GROUNDS RAISED BY ASSESSEE READ AS UNDER: - GROUND NO 1: RELATING TO TRANSFER PRICING ADJUSTMEN T OF RS. 58,31,458/- FOR TECHNICAL SUPPORT SERVICE RENDERED TO THE OVERSEAS ASSOCIATED ENTERPRISE: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE, RANGE -2(1), MU MBAI (HEREINAFTER REFERRED TO AS THE 'AO') GROSSLY ERRED, IN CONFORMITY WITH THE DIRECTIONS OF HON'BLE DISPUTE RESOLUTION PANEL ('DRP'), MUMBAI UNDER SECTION 144C (13) OF THE INCOME TAX ACT, 1961 ('THE ACT') IN MAKING TRANSFER PRICING ADJUSTM ENT OF RS.58,31,458/- IN RESPECT OF TECHNICAL SUPPORT SERVICES RENDERED BY APPELLANT TO ITS OVERSEAS ASSOCIATED ENTERPRISE (''AE'). THE APPELLANT HUMBLY SUBMITS TH AT NO TRANSFER PRICING ADJUSTMENT IS WARRANTED IN ITS CASE AND WISHES TO RAISE THE FO LLOWING GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1.1 THE HON'BLE DRP/ LD. TRANSFER PRICING OF FICER ('TPO')/ LD. AO ERRED IN LAW AND IN FACTS BY WRONGLY REJECTING THE SYSTEMATIC BE NCHMARKING ANALYSIS CARRIED OUT BY THE APPELLANT. 1.2 THE HON'BLE DRP / LD. TPO / LD. AO ERRED IN LAW BY ADDING COMPARABLES WITHOUT A PROPER SEARCH PROCESS MERELY BECAUSE THEY WERE SELECTED IN THE PREVIOUS YEAR, WHICH TANTAMOUNT TO CHERRY PICKING OF COMPARA BLES. 1.3 THE HON'BLE DRP / LD. TPO / LD. AO ERRED IN LAW BY REJECTING COMPARABLE COMPANY VIZ TUTIS TECHNOLOGIES LTD. BY GIVING REASO N OF DIMINISHING REVENUE WITHOUT SHOWING HOW DIMINISHING REVENUE AFFECTS PROFITABILI TY. 1.4 FURTHER, HON'BLE DRP/ LD. TPO / LD. AO E RRED GROSSLY IN BOTH FACTS & IN LAW IN CONFIRMING THE ACCEPTANCE OF CORAL HUB LIMITED A ND ACROPETAL TECHNOLOGIES LIMITED AS A COMPARABLE COMPANY DESPITE THE VARIOUS PERTINENT POINTS BROUGHT OUT BY THE APPELLANT IN SUPPORT OF REJECTING THE SAID C OMPARABLES. 1.5 THE HON'BLE DRP / LD. TPO / LD. AO ERRED IN REQ UIRING THE APPELLANT TO USE LATEST YEAR DATA FOR COMPARABLE COMPANIES WHEN THE TRANSFE R PRICING REGULATIONS REQUIRES DOCUMENTATION TO BE CONTEMPORANEOUS. 1.6 THE HON'BLE DRP / LD. TPO / LD. AO ERRED IN RE JECTING THE CLAIM OF THE ASSESSEE AS REGARDS THE WORKING CAPITAL ADJUSTMENT IN MARGINS OF COMPARABLE COMPANIES. 1.7 THE HON'BLE DRP / LD. TPO / LD. AO ERRED IN NO T CONSIDERING THE FACT THAT THE APPELLANT IS A RISK MITIGATED ENTITY ON ACCOUNT OF IT BEING A CONTRACT SERVICE PROVIDING ENTITY TO ITS ASSOCIATED ENTERPRISE. 1.8 THE HON'BLE DRP FACTUALLY ERRED IN HOLDING TH AT THE APPELLANT BEARS A MUCH BIGGER RISK VIZ. SINGLE CUSTOMER RISK AND ALSO ASSU MES RISKS SUCH AS MANPOWER RISK & PRICE RISK. 1.9 THE HON'BLE DRP ERRED IN STATING THAT WORKING C APITAL ADJUSTMENT AND RISK ADJUSTMENT WERE CLAIMED BY THE ASSESSEE FOR THE FIR ST TIME BEFORE THE DRP WHEN IN FACT THE ASSESSEE HAD BEFORE THE LD. TPO PLEADED FO R WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT. 3 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 1.10 IN ADDITION TO THE ABOVE GROUNDS, THE APPELLAN T WOULD LIKE TO MAKE A FRESH CLAIM WITH RESPECT TO ONE OF THE COMPARABLES APPEAR ING IN THE FINAL SET OF COMPARABLE COMPANIES VIZ. COSMIC GLOBAL LIMITED. THE APPELLANT SUBMITS THAT THE SAID COMPARABLE IS FUNCTIONALLY DISSIMILAR TO APPELLANT AS IT IS MAINLY ENGAGED IN TRANSLATION BUSINESS IN ADDITION TO MEDICAL TRANSCR IPTION, CONSULTANCY AND ACCOUNTS BPO. THE TRANSLATION BUSINESS IS NOT COMPARABLE TO APPELLANT BUSINESS AND HENCE THE SAID COMPARABLE HAS TO BE EXCLUDED. 1.11 THE APPELLANT WISHES TO INFORM THAT THE L D. AO HAS PROPOSED A RECTIFICATION OF THE SAID ORDER U/S 154/155 VIDE A NOTICE DATED O 3' D JANUARY, 2013. BASED ON THE SAID RECTIFICATION THE TP ADJUSTMENT WILL BE REVISE D TO RS.76,21,785/-. THE APPELLANT HAS NOT YET RECEIVED THE RECTIFIED ORDER AS ON THE DATE OF FILING OF THE APPEAL. 1.12 THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE STATED GROUND OF APPEAL, AT ANY TIME BEFORE O R AT, THE TIME OF HEARING OF THE REFERENCE, SO AS TO ENABLE THE LEARNED COLLEGIUM TO DECIDE THIS REFERENCE ACCORDING TO LAW. GROUND NO 2: CONFIRMATION OF DISALLOWANCE U/S 14A R EAD WITH RULE 8D RS. 3,55,141/-: 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN MAKING FURTHER ADDITION UNDER SECTION 14A TO THE EXTENT OF RS.3,55,141. 2.2 THE LEARNED AO HAS ERRED IN APPLYING RULE 8D WITHOUT POINTING OUT ANY DEFECT IN THE CORRECTNESS OF DISALLOWANCE U/S 14A OFFERED BY THE APPELLANT HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT. 2.3 WITHOUT PREJUDICE TO THE ABOVE GROUND, THE AO H AS ERRED IN INCORRECTLY APPLYING THE PROVISION OF RULE 8D WITHOUT EXCLUDING THE INVESTMENTS WHICH EARN PARTLY TAXABLE INCOME AND PARTLY EXEMPT INCOME. 2.4 THE DRP-1 ERRED IN STATING THAT THE ASSESSEE HAS NOT PROVIDED THE DETAILS OF INVESTMENT FROM WHICH TAXABLE INCOME HAS GENERATED. 2.5 IN VIEW OF THE ABOVE, THE APPELLANT RESPECTFULL Y PRAYS THAT THE ADDITIONAL DISALLOWANCE OF RS.3,55,141/- MADE U/S. 14A R.W. RU LE 8D BE DELETED. GROUND NO 3: ADDITION ON ACCOUNT OF TDS (CASS-ITS) RS. 16,38,500/-: 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED AO HAS ERRED IN MAKING THE ADDITION OF RS.16,38,500 ON THE GROUND THAT THERE ARE DIFFERENCES BETWEEN THE INCOME REFLECTED IN ITS TDS STATEMENT A ND THE INCOME BOOKED IN THE SALES REGISTER. 3.2 THE APPELLANT SUBMITS THAT IT HAS DULY OFFER ED ITS ENTIRE INCOME TO TAX AS PER THE METHOD OF ACCOUNTING FOLLOWED BY IT AND THERE IS NO REASON FOR MAKING ANY ADDITION TO THE INCOME ON ACCOUNT OF DIFFERENCE IN INCOME AS RE FLECTED IN ITS/AIR STATEMENT AND INCOME/RECEIPT RECORDED IN THE PARTY'S LEDGER ACCOU NT. 3.3 THE DRP-1 ERRED IN STATING THAT THE APPELLA NT FAILED TO GIVE THE REASONS AS TO WHY IT COULD NOT RECONCILE THE DIFFERENCE. THE DRP- 1 ALSO ERRED IN NOT DIRECTING THE AO TO ISSUE SUMMONS TO THE RESPECTIVE PARTIES. 3.4 THE APPELLANT THEREFORE PRAYS YOUR HONOUR T O DIRECT THE LEARNED AO TO DELETE THE ADDITION. GROUND NO 4: SHORT GRANT OF TDS AMOUNTING TO RS. 88 ,98,090/-: 4 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 4.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN GRANTING CREDIT FOR TDS OF RS. 15,32,97,69 3/- AGAINST RS.16,21,95,783/- AS CLAIMED IN THE RETURN OF INCOME FILED & BY THE APPE LLANT. 4.2 THE APPELLANT OFFICER WHILE PASSING THE ORDER U NDER SECTION 143(3) R.W.S 144C (13) HAS GRANTED THE TDS CREDIT ONLY TO THE EXTENT OF RS. 15,32,97,693/- WITHOUT ASSIGNING ANY REASON. 4.3 THE APPELLANT HAS CLAIMED THE CREDIT OF THE T DS ON THE BASIS OF THE TDS CERTIFICATE RECEIVED BY THE APPELLANT DURING THE YE AR UNDER ASSESSMENT. 4.4 THE APPELLANT THEREFORE PRAYS YOUR HONOR TO DI RECT THE AO TO GRANT CREDIT FOR TDS AT RS.16,21,95,783/-. GROUND NO 5: INCORRECT LEVY OF INTEREST U/S 234B OF RS. 9,07,609/-: 5.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE INCOME TAX ACT, 1961 OF RS.9,07,609/- 5.2 THE LEARNED AO HAS IGNORED THE FACT THAT AFTE R CONSIDERING THE ADVANCE TAX AMOUNTING TO RS.14,05,00,000/- AND CREDIT FOR TDS A MOUNTING TO RS.15,32,97,693/-, THE APPELLANT IS IN A REFUND POSITION. SINCE THERE IS NO TAX LIABILITY, THE QUESTION OF LEVYING INTEREST U/S 234B DOES NOT ARISE. 5.3 THE LEARNED AO HAS INADVERTENTLY AND ERRONEOUSL Y LEVIED INTEREST U/S 234B TO NULLIFY THE REFUND AMOUNT. 5.4 THE APPELLANT THEREFORE PRAYS TO YOUR HONOR T O DIRECT THE AO TO DELETE THE LEVY OF INTEREST U/S 234B AMOUNTING TO RS.9,07,609/- GROUND NO 6: INTEREST UNDER SECTION 244A: 6.1 THE LEARNED AO ERRED IN NOT GRANTING INTEREST U NDER SECTION 244A OF THE ACT. 6.2 THE APPELLANT PRAYS YOUR HONOR THAT THE APPEL LANT BE GRANTED INTEREST UNDER SECTION 244A OF THE ACT. GROUND 7: PENALTY PROCEEDINGS THE HON'BLE DRP / LD. TPO / LD. AO ERRED IN LAW AND IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND V IDE PETITION DATED 29/01/2020 IN WHICH IT HAS PLEADED FOR INCLUS ION OF AN ENTITY NAMELY M/S ALLSEC TECHNOLOGIES LIMITED IN THE FINAL LIST OF COMPARABLES. THE SAME SHALL BE TAKEN UP WHILE ADJUD ICATING TRANSFER PRICING ADJUSTMENTS. 2. THE LEARNED AUTHORIZED REPRESENTATIVE FOR ASSESS EE (AR), SHRI VIJAY MEHTA, CONTESTED TRANSFER PRICING ADJUST MENT AS CONFIRMED IN THE FINAL ASSESSMENT ORDER SPECIFICALL Y BY PRESSING GROUND NOS. 1.4 & 1.10. IN OTHER WORDS, LD. AR REST RICTED HIS 5 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 ARGUMENT TO THE EXTENT OF INCLUSION / EXCLUSION OF THREE COMPARABLE ENTITIES VIZ. (I) M/S CORAL HUB LIMITED; (II) M/S A CROPETAL TECHNOLOGIES LIMITED; (III) M/S COSMIC GLOBAL LIMIT ED. IN SUPPORT OF INCLUSION / EXCLUSION OF THESE ENTITIES, RELIANCE H AS BEEN PLACED ON VARIOUS DECISIONS RENDERED IN THE CASE OF SIMILARLY PLACED ASSESSEE. THE COPIES OF THE SAME HAVE BEEN PLACED ON RECORD. WE HAVE DULY CONSIDERED THE SAME. THE LD. AR ADVANCED ARGUMENTS WITH RESPECT TO CORPO RATE TAX GROUNDS ALSO. THE LD. DEPARTMENTAL REPRESENTATIVE, SHRI ANAND MOHAN, ON THE OTHER HAND, CONTROVERTED THE ARGUMENT S TAKEN BY LD. AR AND PLEADED FOR CONFIRMATION OF ADDITIONS / ADJU STMENTS MADE IN FINAL ASSESSMENT ORDER. THE WRITTEN SUBMISSIONS WER E FILED IN DUE COURSE OF HEARING WHICH HAS DULY BEEN CONSIDERED. R ELIANCE HAS SIMILARLY BEEN PLACED ON CERTAIN DECISIONS IN SUPPO RT OF REVENUES ARGUMENTS. 3. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, O RAL AS WELL AS WRITTEN AND PERUSED RELEVANT MATERIAL ON RECORD. AF TER CAREFUL CONSIDERATION OF THE SAME, OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. A. TRANSFER PRICING GROUNDS 4.1 THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE IS STATED TO BE ENGAGED IN DESIGNING, DEVELOPING, MARKETING & SE RVICING OF DATA COMMUNICATION & NETWORK SYSTEMS. A FINAL ASSESSMENT ORDER WAS PASSED FOR THE YEAR UNDER CONSIDERATION U/S 143(3) R.W.S. 144C (13) OF THE ACT ON 20/12/2013 WHEREIN THE INCOME WAS DET ERMINED AT 6 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 RS.7986.46 LACS AFTER CERTAIN ADDITIONS / ADJUSTMEN TS AS AGAINST RETURNED INCOME OF RS.7906.69 LACS FILED BY THE ASS ESSEE ON 30/09/2009. ONE OF THE ADJUSTMENTS WAS TRANSFER PRI CING ADJUSTMENTS OF RS.58.31 LACS U/S 92CA AS PROPOSED B Y LD. TRANSFER PRICING OFFICER-1(10), MUMBAI (TPO) IN ITS ORDER U/S 92CA (4). THE DIRECTIONS OF LD. DRP HAVE PROVIDED PARTIA L RELIEF TO THE ASSESSEE AGAINST WHICH THE ASSESSEE IS IN FURTHER A PPEAL BEFORE US. 4.2 THE ASSESSEE CARRIED OUT CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) WHICH WERE SUB JECT MATTER OF DETERMINATION OF ARMS LENGTH PRICE (ALP) BEFORE LD . TPO VIDE REFERENCE U/S 92CA (1). THE LD. TPO NOTED THAT THE ASSESSEE WAS PART OF DATACRAFT GROUP, BEING SUBSIDIARY OF DATACR AFT ASIA LTD., SINGAPORE. THE GROUP WAS DEALER OF CISCO NETWORKING PRODUCTS AND THE ASSESSEE WAS ENGAGED IN TRADING OF NETWORKI NG PRODUCTS AND PROVIDING SERVICES SUCH AS TRAINING, MAINTENANC E INSTALLATION, CONSULTANCY, FACILITY MANAGEMENT, OUTSOURCING AND S YSTEMS INTEGRATION IN THE AREA OF INFORMATION COMMUNICATIO N SYSTEMS AND COMPUTER NETWORKING AND COMPUTER HARDWARE AND SOFTW ARE. THE ASSESSEES ACTIVITIES WERE CLASSIFIED AS IT SERVICE S PROVIDER (ITES). 4.3 IT TRANSPIRED THAT THE ASSESSEE, THROUGH ITS GL OBAL SERVICE CENTRE (GSC), PROVIDED TECHNICAL AND RELATED SUPPOR T SERVICES TO THE CUSTOMERS OF THE OVERSEAS AE AND RAISED BILLS F OR SUCH SERVICES ON OVERSEAS AE. IT IS UNDISPUTED POSITION THAT THE ASSESSEE WAS REMUNERATED AT COST PLUS MARK-UP OF 10%. HOWEVER, I T HAS OFFERED ADDITIONAL MARK-UP OF 5% IN ITS COMPUTATION OF INCO ME. IN NUTSHELL, 7 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 THE ASSESSEE HAS OFFERED AGGREGATE MARGIN OF 15% AG AINST THESE SERVICES WHICH ARE STATED TO BE IN THE NATURE OF CA LL CENTRE SERVICES. 4.4 IN ITS TP STUDY REPORT (TPSR), THE ASSESSEE BEN CHMARKED THIS TRANSACTION USING TRANSACTIONAL NET MARGIN METHOD ( TNMM) AS THE MOST APPROPRIATE METHOD (MAM) USING PROFIT LEVEL IN DICATOR (PLI) AS OPERATING PROFIT / COST (OP/COST) AND THE ASSESS EE BEING THE TESTED PART. IN ITS TPSR, THE ASSESSEE PITIED ITS M ARGIN OF 15% AGAINST MEAN MARGIN OF 7.62% AS REFLECTED BY 20 COM PARABLE ENTITIES AND THEREFORE, NO FURTHER ADJUSTMENT WERE PROPOSED WHILE FILING ITS RETURN OF INCOME. WHILE DOING SO, THE AS SESSEE HAD APPLIED CERTAIN FILTERS. HOWEVER, DURING THE COURSE OF PROC EEDINGS BEFORE LD. TPO, IT WAS DIRECTED TO APPLY OTHER FILTERS WHICH W ERE USED IN AY 2008-09. THESE FILTERS WERE WITH RESPECT TO SERVICE INCOME / EXPORT INCOME / RELATED PARTY TRANSACTIONS AND ENTITIES HA VING DIFFERENT FINANCIAL YEARS. APPLYING NEW FILTERS, THE ASSESSEE ARRIVED AT A SET OF 7 COMPARABLE ENTITIES WITH MEAN MARGIN OF 15.90% WH ICH WERE AGAIN SHOWN TO BE IN SAFE HARBOUR ZONE AND THEREFOR E, NO FURTHER ADJUSTMENTS WERE PROPOSED. THIS LIST INCLUDED 2 ENT ITIES VIZ. M/S COSMIC GLOBAL LIMITED AS WELL AS M/S CORAL HUB LIMI TED (EARLIER KNOWN AS M/S VISHAL INFORMATION TECHNOLOGIES LTD.) WHICH ARE THE ENTITIES UNDER DISPUTE BEFORE US. 4.5 WITH A VIEW TO BROADEN THE SEARCH CRITERIA, LD. TPO DIRECTED THE ASSESSEE TO INCLUDE 5 MORE ENTITIES, ONE OF WHI CH WAS M/S ACROPETAL TECHNOLOGIES LIMITED. THIS ENTITY IS ALSO SUBJECT MATTER OF DISPUTE BEFORE US. THE ASSESSEE OPPOSED INCLUSION O F 3 ENTITIES 8 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 INCLUDING THIS ENTITY AS PROPOSED BY LD. TPO AND AR RIVED AT MEAN MARGIN OF 15.01% WHICH WAS ALSO SHOWN TO BE WITHIN PERMISSIBLE RANGE. THE EXCLUSION OF M/S ACROPETAL TECHNOLOGIES LTD. WAS SOUGHT ON THE GROUND OF ABNORMAL OPERATIONAL CIRCUM STANCES SINCE IT HAD LOW EMPLOYEE COST WHICH WAS ABNORMAL FOR ITE S ENTITY. 4.6 HOWEVER, LD. TPO CHOSE TO ACCEPT 5 ENTITIES IN FINAL SET, THE MEAN MARGIN OF WHICH CAME TO 31.90%. ALL THE THREE ENTITIES, AS DISPUTED BEFORE US, FORM PART OF THIS LIST. FINALLY , APPLYING THE ALP RATE OF 31.90%, LD. TPO WORKED OUT ARMS LENGTH PRI CE OF THE SERVICES AT RS.784.53 LACS AS AGAINST RS.654.27 LAC S AS REFLECTED BY THE ASSESSEE AND WORKED OUT DIFFERENTIAL OF RS.1 30.25 LACS. AFTER ADJUSTING THE SUO-MOTO ADJUSTMENT OF 5% AS OFFERED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME, NET TP ADJUS TMENT THUS PROPOSED CAME TO RS.97.03 LACS. THE SAID ADJUSTMENT WAS INCORPORATED IN THE DRAFT ASSESSMENT ORDER DATED 08 /03/2013 WHICH WAS SUBJECT MATTER OF ASSESSEES OBJECTIONS BEFORE LD. DISPUTE RESOLUTION PANEL (DRP). 4.7 THE ASSESSEES PLEA TO EXCLUDE M/S ACROPETAL TE CHNOLOGIES LTD. WAS REJECTED BY LD. DRP BUT LD.AO WAS DIRECTED TO APPLY CORRECT PLI OF THIS ENTITY. THE PLEA TO EXCLUDE M/S CORAL HUB LIMITED (EARLIER KNOWN AS M/S VISHAL INFORMATION TECHNOLOGI ES LTD.) WAS ASSAILED ON THE GROUND OF OUTSOURCING BUSINESS MODE L AND LOW EMPLOYEE COST BUT THE SAME WAS REJECTED. THE LAST E NTITY I.E. M/S COSMIC GLOBAL LIMITED WAS NOT CONTESTED BY THE ASSE SSEE BEFORE LD. DRP. THE DIRECTIONS OF LD. DRP REDUCED THE TP A DJUSTMENT TO 9 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 RS.58.31 LACS WHICH WERE INCORPORATED IN THE FINAL ASSESSMENT ORDER DATED 20/12/2013. HOWEVER, THIS ORDER HAS SUB SEQUENTLY BEEN REVISED ON 11/02/2014 WHEREIN ADDITIONAL TP AD JUSTMENT OF RS.17.90 LACS HAS BEEN MADE TO INCORPORATE CORRECT MARGINS OF M/S ACROPETAL TECHNOLOGIES LIMITED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. AFTER CAREFUL CONSIDERATION, OUR ADJUDICATION WI TH RESPECT TO 3 COMPARABLE ENTITIES AS ARGUED BEFORE US WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. (I) M/S ACROPETAL TECHNOLOGIES LIMITED; THE EXCLUSION OF THIS ENTITY HAS BEEN SOUGHT ON THE GROUND THAT THIS ENTITY HAS LOW EMPLOYEE COST OF 10.40% OF THE OPERA TING REVENUE IN COMPARISON TO ASSESSEES COST OF 42.35% WHICH WOULD IMPLY THAT THIS ENTITY WAS NOT EMPLOYING ITS OWN SOURCES WHILE RENDERING THE SERVICES. THEREFORE, THE ENTITY COULD NOT BE HELD T O BE A COMPARABLE ENTITY. IT HAS ALSO BEEN SUBMITTED THAT THIS COMPAN Y HAS ESTABLISHED A WHOLLY OWNED SUBSIDIARY COMPANY IN DUBAI WHICH HA S CONTRIBUTED TO ITS HIGHER TURNOVER AND HIGHER PROFITABILITY. FU RTHER THIS ENTITY HAS MADE STRATEGIC INVESTMENTS IN ANOTHER ENTITY AND TH EREFORE, IT COULD NOT BE HELD TO BE A COMPARABLE ENTITY. UPON PERUSAL OF FINANCIALS OF THIS ENTITY AS PLACED ON RECORD, WE FIND THAT OUT OF SALES TURNOVER OF RS.89.30 CRORES, A SU BSTANTIAL AMOUNT OF RS.42.90 CRORES HAS BEEN SPENT ON ONSITE DEVELOP MENT CHARGES. FURTHER, THIS ENTITY IS ENGAGED IN DEVELOPMENT OF C OMPUTER SOFTWARE AS WELL AS DEAL IN SOFTWARE PRODUCT. THE SAME IS EV IDENT FROM THE 10 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 FACT THAT IT HAS CLOSING INVENTORIES OF RS.1.86 CRO RES. SO FAR AS THE SEGMENTAL RESULTS ARE CONCERNED, IT HAS EARNED REVE NUE OF RS.32.14 CRORES FROM ENGINEERING DESIGN SERVICES WH EREAS THE BALANCE RS.57.1 CRORES HAVE BEEN EARNED FROM IT SER VICES. THE EXPENDITURE UNDER THE TWO SEGMENTS HAS BEEN ALLOCAT ED AS APPROX. 58% OF THE SEGMENTAL REVENUE. SIMILAR IS THE BASIS OF ALLOCATION IN IMMEDIATELY PRECEDING YEAR. THEREFORE, THE SEGMENTA L RESULTS COULD NOT BE RELIED UPON. AFTER DUE CONSIDERATION OF ALL THESE FACTORS, WE ARE OF THE OPINION THAT THIS ENTITY IS NOT PURELY I N THE FIELD OF RENDERING ITES SERVICES. ITS SEGMENTAL RESULTS COUL D NOT BE RELIED UPON WHICH IS EVIDENT FROM ITS FINANCIAL STATEMENTS . THEREFORE, IT WOULD NOT BE A GOOD COMPARABLE FOR THE ASSESSEE. WE DIRECT FOR EXCLUSION OF THIS ENTITY. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09, ITA NO.7725/MUM/2012 ORDER DATED 27/07/2020 HAS TAKEN SIMILAR VIEW AND DIRECTED FOR EXCLUSION OF THIS ENTITY. SIMILAR IS OUR VIEW. WE DIRECT FOR EXCLUSIO N OF THIS ENTITY. (II) M/S CORAL HUB LIMITED (EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES LIMITED) BEFORE LD. DRP, THIS ENTITY WAS OBJECTED TO ON THE SIMILAR GROUND OF OUTSOURCING BUSINESS MODEL AND CONSEQUENTIAL EMPLOY EE COST. HOWEVER, THESE ARGUMENTS WERE REJECTED APPLYING THE ANALOGY OF M/S ACROPETAL TECHNOLOGIES LTD. THE LD. AR HAS SUBMITTED THAT THIS ENTITY HAS OUTSO URCED ITS SERVICES TO OUTSIDE VENDORS AS AGAINST THE FACT THA T THE ASSESSEE 11 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 HAS RENDERED THE SERVICES ITSELF. THE BUSINESS MODE L BEING DIFFERENT, THE TWO ENTITIES COULD NOT BE COMPARED W ITH EACH OTHER. WE FIND THAT THE EXCLUSION OF THIS ENTITY IS COVERE D BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN PR. CIT V/S PTC SOFTWARE (I) PVT. LTD. (ITA NO. 598 OF 2016 DATED 16/04/2018) WHEREIN THE EXCLUSION OF THIS ENTITY FOR AY 2009-10 HAS BEEN UPHELD BY HO NBLE COURT ON SIMILAR REASONING. THIS BEING THE CASE, WE DIRECT F OR EXCLUSION OF THIS ENTITY FROM THE FINAL SET OF COMPARABLES. (III) M/S COSMIC GLOBAL LIMITED APPARENTLY, THIS ENTITY WAS NOT DISPUTED BY THE ASS ESSEE BEFORE LD. DRP. HOWEVER, THE ASSESSEE SEEK EXCLUSION OF THIS E NTITY IN TERMS OF DECISION OF SPECIAL BENCH OF TRIBUNAL DCIT V/S QUARK SYSTEMS PVT. LTD. (SB CHANDIGARH 22/10/2009) (38 SOT 307). THE LD. AR SUBMITTED THAT THIS ENTITY HAS BEEN EXCLUDED ON ACC OUNT OF FUNCTIONAL DISSIMILARITY IN ASSESSEES OWN CASE FOR AY 2008-09, ITA NO.7725/MUM/2012 ORDER DATED 27/07/2020 WHICH HAS F OLLOWED THE DECISION OF HONBLE BOMBAY HIGH COURT IN PR. CIT V/S APTARA TECHNOLOGY P. LTD.(303 CTR 805). WE FIND THAT SIMILAR FACTS EXIST DURING THE YEAR. N O CHANGE IN THE BUSINESS MODEL OF THIS COMPARABLE ENTITY HAS BEEN S HOWN BEFORE US. THEREFORE, WE DIRECT FOR EXCLUSION OF THIS ENTI TY ON THE GROUND OF FUNCTIONAL DISSIMILARITY. SINCE WE HAVE DIRECTED FOR EXCLUSION OF THESE 3 ENT ITIES, THE FINDING WITH RESPECT TO LAST COMPARABLE ENTITY AS ENUMERATE D IN ADDITIONAL 12 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 GROUND OF APPEAL HAS BEEN RENDERED INFRUCTUOUS, AS SUBMITTED BY LD. AR. THE LD. AO / TPO IS DIRECTED TO RE-COMPUTE THE TP A DJUSTMENT, IF ANY, AFTER EXCLUDING THESE 3 ENTITIES. THE GROUND T HUS RAISED AS WELL AS ARGUED BEFORE US STAND ALLOWED WHICH MAKES OTHER GROUND INFRUCTUOUS. B. CORPORATE TAX GROUNDS 6. GROUND NO.2: DISALLOWANCE U/S 14A 6.1 THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF R S.215.27 LACS AND OFFERED SUO-MOTO DISALLOWANCE OF RS.7.10 L ACS IN ITS COMPUTATION OF INCOME. THE SAID DISALLOWANCE WAS NO THING BUT ESTIMATED DISALLOWANCE OF 60% SALARY OF TWO EMPLOYE ES WHO WERE STATED TO BE OVERLOOKING THE INVESTMENT ACTIVITIES. HOWEVER, IT WAS OBSERVED BY LD. AO THAT THE ASSESSEE DEBITED EXPEND ITURE OF RS.93.93 CRORES UNDER VARIOUS SUB-HEADS SUCH AS REN T, RATES & TAXES, REPAIRS, SALARIES, PROFESSIONAL FEES, TELEPH ONE ETC. AND THEREFORE THE INDIRECT EXPENDITURE DISALLOWANCE WAS TO BE COMPUTED AS PER RULE 8D(2)(III) BEING 0.5% OF AVERAGE INVEST MENTS HELD BY THE ASSESSEE DURING THE YEAR. THE DISALLOWANCE SO C OMPUTED WORKED OUT TO BE RS.10.65 LACS AND AFTER ADJUSTING SUO-MOTO DISALLOWANCE OF RS.7.10 LACS ALREADY OFFERED BY THE ASSESSEE, THE DIFFERENTIAL AMOUNT OF RS.3.55 LACS WAS ADDED TO TH E INCOME OF THE ASSESSEE WHILE FRAMING DRAFT ASSESSMENT ORDER. 6.2 BEFORE LD. DRP, THE ASSAILED THE SAME BY SUBMIT TING THAT LD. AO DID NOT SHOW THAT THE SUO-MOTO DISALLOWANCE AS O FFERED BY THE 13 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 ASSESSEE WAS INADEQUATE. HOWEVER, LD. DRP CHOSE TO UPHOLD THE STAND OF LD. AO. AGGRIEVED, THE ASSESSEE IS UNDER F URTHER APPEAL BEFORE US. 7. UPON DUE CONSIDERATION, WE FIND THAT LD. AO HAS NOT FAULTED WITH THE SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE . THE ASSESSEE ESTIMATED THE SAME @60% OF SALARY OF TWO E MPLOYEES WHICH WERE STATED TO BE ENGAGED IN INVESTMENT ACTIV ITY. HOWEVER, LD. AO DID NOT DEMONSTRATE AS TO HOW THE SAID DISAL LOWANCE WAS INADEQUATE. WE FIND THAT IT WAS INCUMBENT FOR LD. A O TO RECORD A SATISFACTION AS TO WHY THE DISALLOWANCE OFFERED BY THE ASSESSEE WAS NOT SUFFICIENT AND THIS SAID SATISFACTION WAS T O BE ARRIVED AT HAVING REGARD TO ASSESSEES BOOKS OF ACCOUNTS. THE RECORDING OF THE SAID SATISFACTION WAS SINE QUA NON BEFORE PROCEEDING TO APPLY RULE 8D. ALTHOUGH THERE IS NO PARTICULAR FORMAT OR MANNER IN WHICH THE SATISFACTION WAS TO BE RECORDED BUT AT LEAST TH E SAME SHOULD HAVE BEEN DISCERNIBLE FROM THE ORDER OF LD. AO. WE FIND THAT THERE IS NO DISCUSSION WHATSOEVER AS TO SUFFICIENCY OR IN SUFFICIENCY OF SUO- MOTO DISALLOWANCE OFFERED BY THE ASSESSEE. NO FAULT HAS BEEN POINTED OUT IN ASSESSEES METHODOLOGY OF ARRIVING A T THE SAID DISALLOWANCE. THE APPLICATION OF RULE 8D WAS NOT ME CHANICAL. THEREFORE, THE ADDITIONAL DISALLOWANCE AS MADE BY L D. AO IN TERMS OF RULE 8D WAS TO BE REJECTED RATHER THE ASSESSEES SUO-MOTO DISALLOWANCE WAS TO BE ACCEPTED. BY DELETING THE SA ME, WE ALLOW THIS GROUND OF APPEAL. 14 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 8. GROUND NO.3: ADDITION ON ACCOUNT OF TDS FOR RS.16,38,500/- 8.1 IT SO TRANSPIRED THAT THE ASSESSEE CLAIMED TDS CREDIT OF RS.1621.95 LACS AGAINST RECEIPTS OF RS.190.99 CRORE S. THE ASSESSEE WAS DIRECTED TO RECONCILE THE TDS SO DEDUC TED WITH DATA CONTAINED IN FORM 26AS / TDS STATEMENTS. AFTER GOIN G THROUGH RECONCILIATION STATEMENT FILED BY THE ASSESSEE, IT WAS NOTED THAT THE ASSESSEE COULD NOT RECONCILE RECEIPTS TO THE TUNE O F RS.16.38 LACS. SINCE THE ASSESSEE, IN THE OPINION OF LD.AO, COULD NOT OFFER SATISFACTORY EXPLANATION OR DOCUMENTARY EVIDENCES A GAINST NON- RECONCILED ITEMS, THE SAME WAS TO BE TREATED AS UNE XPLAINED INCOME. THEREFORE, THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE. THE LD. DRP CONFIRMED THE ADDITION SO MAD E BY OBSERVING THAT THE INCOME CERTAINLY ACCRUED TO THE ASSESSEE THOUGH THE SAME MAY NOT HAVE BEEN RECEIVED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8.2 THE LD. AR TOOK US THROUGH RECONCILIATION STATE MENT FOR THE SUBMISSION THAT DESPITE BEST EFFORTS, OUT OF THE TO TAL AMOUNT OF RS.186.73 CRORES AS REFLECTED IN ITS, THE ASSESSEE WAS ABLE TO RECONCILE THE AMOUNT OF RS.186.56 CRORES WHICH IS A PPROX. 99.96% RECONCILIATION. OUR ATTENTION HAS FURTHER BEEN DRAW N TO THE FACT THAT THE ASSESSEE HAS REPORTED INCOME OF MORE THAN RS.33 5 CRORES WHICH FAR EXCEEDS THE INCOME OF RS.186 CRORES REPOR TED IN TDS DATA. THE LD. AR SUBMITTED THAT THE AMOUNTS MAY VAR Y DUE TO TIMING DIFFERENCES, DIFFERENCE IN ACCOUNTING METHOD OLOGY ADOPTED 15 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 BY DEDUCTOR & DEDUCTEE AND IN VIEW OF THE TREATMENT OF COMPONENT OF SERVICE TAX IN THE BOOKS OF ACCOUNTS. 9. UPON PERUSAL OF RECONCILIATION STATEMENT, WE FIN D THAT PETTY DIFFERENCES HAVE ARISEN IN THE ACCOUNT OF VARIOUS D EDUCTOR. THE UNRECONCILED AMOUNT VARIES FROM AS LOW AS RS.20/- T O AS HIGH AS RS.6,72,400/-. HOWEVER, AS RIGHTLY PLEADED BY LD. A R, THE UNRECONCILED AMOUNT COULD NOT BE TREATED AS UNEXPLA INED INCOME, KEEPING IN VIEW THE FACT THAT THE ASSESSEE HAD REFL ECTED RECEIPTS FAR IN EXCESS OF WHAT WAS SHOWN BY THE DEDUCTOR IN TDS DATA. THEREFORE, WE ACCEPT THE ARGUMENTS RAISED BY LD. AR AND DELETE THIS DIFFERENCE FROM THE INCOME OF THE ASSESSEE. TH IS GROUND STAND ALLOWED. 10. GROUND NO. 4: SHORT GRANT OF TDS FOR RS.88,98,0 90/- IN THIS GROUND, THE ASSESSEE IS AGGRIEVED BY THE FA CT THAT THOUGH IT CLAIMED TDS CREDIT OF RS.1621.95 LACS IN THE COMPUT ATION OF INCOME, HOWEVER, IT HAS BEEN GRANTED CREDIT OF ONLY RS.1532.97 LACS. THE SAME BEING MATTER OF RECORD & RECONCILIAT ION, WE DIRECT LD. AO TO GRANT DUE TDS CREDIT TO THE ASSESSEE AS P ER LAW. THIS GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. 11. OTHER GROUNDS GROUND NO. 5 CONTESTS LEVY OF INTEREST U/S 234B. TH E INTEREST, BEING CONSEQUENTIAL AND MANDATORY IN NATURE, WOULD NOT RE QUIRE ANY SPECIFIC ADJUDICATION ON OUR PART. THE LD. AO IS DI RECTED TO RE- COMPUTE ASSESSEES INCOME AND LEVY INTEREST AS PER LAW. IN GROUND NO.6, THE ASSESSEE PRAYS FOR GRANT OF INTEREST U/S 244A. FOR THE 16 IT(TP)A NO.1155/MUM/2014 M/S DIMENSION DATA INDIA LIMITED ASSESSMENT YEARS-2009-10 SAME, IT WOULD SUFFICE ON OUR PART TO DIRECT LD. AO TO GRANT THE INTEREST IN ACCORDANCE WITH LAW. GROUND NO. 7 CONTE ST INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C), WHICH IS PREMATU RE IN NATURE. CONCLUSION 12. THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OU R ABOVE ORDER. ORDER PRONOUNCED ON 17 TH DECEMBER, 2020 SD/- SD/- (VIKAS AWASTHY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 17/12/2020 SR.PS:-JAISY VARGHESE >?@ABA / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. $% ! / THE RESPONDENT 3. 4 ( ) / THE CIT(A) 4. 4 / CIT CONCERNED 5. 56$)7 , 7 , / DR, ITAT, MUMBAI 6. 689: / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.