Harsco India Services Private Limited, Hyderabad, Hyderabad V. DCIT, Circle-2(2), Hyderabad, Hyderabad

ITA 119/HYD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0278 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 18-02-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 25-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: PHALGUNI SHARMA
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE S MT P. MADHAVI DEVI , JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 119 /HYD/201 7 ASSESSMENT YEAR: 20 12 - 1 3 HARSCO INDIA SERVICE S PVT. LTD., HYDERABAD . PAN AA CCH2515A VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 2 (2), HYDERABAD. ( APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI S.P. CHIDAMBARAM & MS. PHALGUNI SHARMA REVENUE BY : SHRI Y.V.S.T. SAI DATE OF HEARING : 18 / 0 2 /201 9 DATE OF PRONOUNCEMENT : 29/ 0 3 / 201 9 O R D E R PER S . RIFAUR RAHMAN , A .M. : THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER PASSED U/S 143(3) R.W.S. 92CA R.W.S. 144C OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) DATED 2 9 /1 1 /201 6 RELATING TO AY 20 1 2 - 13 . 2. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SERVICES, FILED ITS RETURN OF INCOME FOR THE AY 2012 - 13 ON 26/11/2012 DECLARING TOTAL INCOME OF RS. 3,16,09,960/ - . 2.1 DURING THE YEAR ASSESSEE ENTERED I NTO INTERNATIONAL TRANSACTIONS WITH AES AND, THEREFORE, THE CASE WAS REFERRED TO TRANSFER PRICING OFFICER (TPO), WHO HAD PASSED THE ORDER ON 2 9 / 01 /2016 SUGGESTING THE ADJUSTMENT U/S 92CA (3) OF THE ACT AND HELD THAT THE TOTAL INCOME OF THE ASSESSEE BE ENHAN CED BY RS. 1,87,40,795 / - , THE DETAILS OF WHICH ARE AS UNDER: 2 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. 2. 2 ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS , AS PER 3CEB REPORT/TP DOCUMENT : AE NATURE OF TRANSACTION AMOUNT (RS. HARSCO CORPORATION PROVISION OF IT ENABLES SERVICES REIMBURSEMENT OF EXPENSES (PAID/PAYABLE) RECEIVABLES PAYABLES 9,49,67,497 24,65,130 28,00,440 40,53,487 HARSCO METALS GROUP LTD. PROVISION OF IT ENABLES SERVICES RECEIVABLES 9,26,20,628 1,77,53,730 HARSCO INFRASTRUCTURE SERVICES LTD. PROVISION OF IT ENABLES SERVICES RECEIVABLES 3,06,81,490 76,22,147 HARSCO INFRASTRUCTURE SERVICES GMBH PROVISION OF IT ENABLES SERVICES PAYABLES 68,52,592 4,73,775 AL QUEBEISI SGB LLC PROVISI ON OF IT ENABLES SERVICES PAYABLES 55,09,159 1,06,476 HARSCO METALS LUXEQUIP PROVISION OF IT ENABLES SERVICES RECEIVABLES 36,07,748 11,25,865 HARSCO METALS LTDA PROVISION OF IT ENABLES SERVICES RECEIVABLES 4,17,380 4,17,380 HARSCO METALS SOUTH PROVISION OF IT ENABLES SERVICES RECEIVABLES 4,52,619 4,52,619 2.2 THE TPO NOTED THAT A SS ESSEE HAS AGGREGATED THE TRANSACTIONS AND USED PROWESS AND CAPITALINE DATA BASE IN SEARCH FOR COMPARABLE COMPANIES. FOR THE IT ENABLED SERVICES, AFTER APPLYING CERTAIN FILTERS, THE ASSESSEE HAS SHORT - LISTED 5 COMPANIES, ARITHMETIC MEAN PLI (OP/OC WAS COMPUTED AT 17.51% AS AGAI NST ITS OWN PLI OF 15.00%. ACCORDINGLY, THE ASSESSEE STATED THAT THE INTERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH. 3 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. 2. 3 AS PER THE AUDITED STATEMENT OF ACCOUNTS THE FINANCIALS OF THE ASSESSEE ARE AS UNDER: DESCRIPTION AMOUNT (IN RS.) OPERATING REVENUE 24,13,05,252 OPERATING COST 20,98,16,078 OPERATING PROFIT 3,14,89,174 OP/OR (%) 13.05% OP/OC (%) 15.01% 2.5 WITH REGARD TO ECO NOMIC ANALYSIS OF THE ASSESSEE, THE TPO OBSERVED THAT THE METHOD OF THE SEARCH PROCESS SUFFERS FROM DEFECTS WHICH RESULTED IN SELECTION OF INAPPROPRIATE COMPARABLES AND REJECTION OF COMPANIES THAT ARE APPROPRIATE COMPARABLES. THE TPO, THEREFORE, REJECTED T HE TP DOCUMENT AND AN INDEPENDENT ANALYSIS WAS MADE BY AGGREGATING ALL THE TRANSACTIONS UNDER TNMM. 2.6 THE TPO ARRIVED THE ARMS LENGTH MARGIN AT 23.94% AND THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WAS DETERMINED AT RS. 26,00,46,047/ - AND A SUM OF RS. 1,87,40,795/ - WAS TREATED AS ADJUSTMENT U/S 92C(3) OF THE ACT. TO COME TO THE SAID ADJUSTMENT, THE TPO TREATED THE FOLLOWING COMPANIES A S FINAL COMPARABLES AFTER ANALYSING THE DATA BASES, THE ANNUAL REPORTS AND AFTER CONSIDERING THE OBJECTIONS F ILED BY THE ASSESSEE: S.NO. COMPANY NAME OP/OC% 1 ACCENTIAL TECHNOLOGIES LTD. 11.16 2 DATAMATICS GLOBAL SERVICES LTD. 16.84 3 ECLERX SERVICES LTD. 61.37 4 E4E HEALTH CARE 13.73 5 INFORMED TECHNOLOGIES INDIA LTD. 7.10 6 I NFOSYS BPO LTD. 34.68 7 JINDAL INTELLICOM LTD. 1.98 8 MICROGENETIC SYSTEMS LTD. 7.01 9 TCS E - SERVE LTD. (MERGED) 65.82 10 CROSS DOMAIN SOLUTIONS PVT. LTD. 29.88 TOTAL 249.5 7 AVERAGE 24.96 4 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. 3. WHEN THE ASSE SSEE RAISED OBJECTIONS BEFORE THE DRP, THE DRP RESTRICTED THE ADJUSTMENT TO RS. 1,69,15,395/ - . 3.1 THE AO, THEREAFTER, PASSED FINAL ASSESSMENT ORDER U/S 143(3) RWS 92CA RWS 144C OF THE ACT, AGAINST WHICH, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FO LLOWING GROUNDS OF APPEAL: GROUNDS OF APPEAL 1. THAT ON THE FACTS AND CI RCUMSTANCES OF THE CASE, THE FINAL ASSESSMENT ORDER DATED 29 NOVEMBER 2016 (AND RECEIVED BY THE APPELLANT ON 7 DECEMBER 2016) PASSED BY THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 2(2), HYDERABAD U/S 143(3) READ WITH SECTION 92CA READ WITH SECTION 144C OF THE INCOME - TAX ACT, 1961 ('ACT'), PURSUANT TO THE DIRECTIONS DATED 31 OCTOBER 2016 BY DISPUTE RESOLUTION PANEL, BANGALORE ('DRP') U/S 144C(5) OF THE ACT AND READ WITH ORDER DATED 29 JANUARY 2016 ISSUED BY TRANSFER PRICING OFFICER ('TPO') U/S 92CA(3) OF THE ACT, IS BAD IN LAW AND VOID AB - INITIO. TRANSFER PRICING GENERAL 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN CONFIRMING TRANSFER PRICING ADJUSTMENT OF RS. 1,69,15,395 ON ACCOUNT OF PROVISION OF INFORMATION TEC HNOLOGY ENABLED SERVICES ('IT E S') BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES ('AES'). 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN REJECTING TRANSFER PRICING DOCUMENTATION MAINTAINED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME - TAX RULES, 1962 ('RULES') AND UNDERTAK ING A FRESH ECONOMIC ANALYSIS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREBY MAKING AN ADJUSTMENT OF RS. 1,69,15,395 TO THE INTERNATIONAL TRANSACTIONS. SELECTION OF UNCOMPARABLE COMPANIES 4. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ DRP ERRED IN ACCEPTING THE FOLLOWING COMPARABLE COMPANIES AS SELECTED BY THE TPO: A) ECLERX SERVICES LIMITED; B) INFOSYS BPO LIMITED; 5 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. C) TCS E - SERVE LTD; AND D) CROSSDOMAIN SOLUTIONS PRIVATE LIMITED. ERROR IN COMPUTATION OF MARGIN OF COMPARABLE COMPANIES 5. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN CONFIRMING THE TPO'S STAND OF TREATING THE PROVISION FOR BAD AND DOUBTFUL DEBTS AND BAD DEBTS WRITTEN OFF AS NON - OPERATING EXPENSES FOR THE PU RPOSE OF MARGIN COMPUTATION OF COMPARABLE COMPANIES AS SELECTED BY TPO. R E JE CTION OF COMPARABLE COMPANIES 6 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OR IN LAW, THE AO/DRP ERRED IN CONFIRMING THE REJECTION OF CRYSTAL VOXX LIMITED AS NOT COMPARABL E USE OF FILTERS 7. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN UPHOLDING THE USE OF DIFFERENT FINANCIAL YEAR END FILTER FOR REJECTION OF COMPARABLE COMPANIES WHILE UNDERTAKING THE COMPARATIVE ANALYSIS. REJECTION OF USE OF MULTIPLE YEAR DATA 8. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN REJECTING THE USE OF MULTIPLE YEAR DATA AND USING DATA FOR FY 2011 - 12 ONLY. ADJUSTMENT FOR RISK DIFFERENCES THAT ON THE FACTS AND C IRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN DISREGARDING THE RISK PROFILE OF THE APPELLANT VIS - A - VIS ALLEGED COMPARABLE COMPANIES SELECTED BY THE TPO AND NOT ALLOWINQ RISK ADJUSTMENT AS PER THE PROVISIONS OF RULE 10B(1)(E) OF THE RULES. ARM' S LENGTH RANGE OF 5% 10. THAT THE AO / TPO BE DIRECTED TO RE - WORK THE PROFIT MARGINS OF THE APPELLANT VIS - A - VIS THE RESULTANT COMPARABLE COMPANIES AND TO ALLOW THE BENEFIT OF + / - 5% RANGE AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT. 6 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. MAT CRE DIT 11. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, AO ERRED IN NOT GRANTING MINIMUM ALTERNATE TAX CREDIT AVAILABLE AMOUNTING TO RS. 40,23,521 WHILE COMPUTING THE TAX LIABILITY FOR THE ASSESSMENT YEAR 2012 - 13. OTHERS 12. THAT THE CONSEQUE NTIAL EFFECT SHOULD BE GIVEN TO THE INTEREST LIABILITY UNDER SECTION 234B OF THE ACT. 13. THAT THE AO ERRED IN CHARGING INTEREST UNDER SECTION 234C OF THE ACT AMOUNTING TO RS. 1,76,969 IN THE FINAL ASSESSMENT ORDER AS AGAINST RS. 15,456 CONSIDERED IN THE RETURN OF INCOME. 14. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3.2 OUT OF THE SAID GROUNDS, THE ASSESSEE PRESSED ONLY GROUND NOS. 4, 6, 9 AND 11 OF THE GROUNDS OF APPEAL. 4. IN GROUND NO. 4, THE ASSESSEE PRAYS TO EXCLUDE FOUR COMPANIES AS COMPARABLES, HOWEVER, AT THE TIME OF HEARING, HE PRESSED ONLY THE FOLLOWING TWO COMPANIES TO BE EXCLUDED FROM THE LIST OF COMPARABLES: I) INFOSYS BPO LTD. II) TCS E - SERVE LTD. 4.1 AS REGARDS INFOSYS BPO LTD., LD. AR SUBMITTED THAT THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE COMPANY AS IT HAS FUNCTIONAL DISSIMILARI TY AS WELL AS EXTRAORDINARY EVENTS TOOK PLACE DURING THE YEAR AND , FURTHER, IT HAS HIGH TURNOVER OF RS. 1,312 CRORES. HE RELIED ON VARIOUS CASES INCLUDING THE CASE OF HYUNDAI MOTOR INDIA ENGG. PVT. LTD. VS. DCIT, HYDERABAD IN ITA NO. 87/HYD/2017 FOR AY 2 012 - 13. 7 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. 4.2 THE LD. DR, ON THE OTHER HAND, FILED WRITTEN SUBMISSIONS, WHEREIN, IT IS STATED AS UNDER: 4. REGARDING IMPACT OF TURNOVER ON THE PROFITABILITY OF A COMPANY, THE TPO CONDUCTED AN EXHAUSTIVE ANALYSIS AT PAGE 43 OF HIS ORDER, WHEREIN HE COMPAR ED THE OPERATING REVENUES OF INFOSYS TECHNOLOGIES LTD FROM 1997 TO 2012 AND DEMONSTRATED THAT THE PROFIT MARGINS WERE NOT IMPACTED EVEN WHEN THE TURNOVER INCREASED 183 TIMES. THE SAME REASONING APPLIES TO BRAND VALUE AND INTANGIBLES. WHEN THE ASSESSEE IS U SING HARSCO BRAND, IT ALSO HAS THE BENEFIT OF THE BRAND VALUE AND INTANGIBLES AND CANNOT SEEK EXCLUSION OF COMPARABLES ON SUCH CONSIDERATIONS UNLESS, IT IS QUANTITATIVELY DEMONSTRATED BY THE ASSESSEE THAT SUCH FACTORS HAVE IMPACTED THE PROFIT MARGINS. 5. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL ADVISORS INDIA PVF LTD (376 ITR 173), WHEREIN THE HON'BLE HIGH COURT HELD AT PARA 33 OF THE DECISION THAT 'IT IS CLEAR THAT EXCLUSION OF SOME COMPANI ES WHOSE FUNCTIONS ARE BROADLY SIMILAR AND WHOSE PROFILE - IN RESPECT OF THE ACTIVITY IN QUESTION CAN BE VIEWED INDEPENDENTLY FROM OTHER ACTIVITIES - CANNOT BE SUBJECT TO A PER SE STANDARD OF LOSS MAKING COMPANY OR AN 'ABNORMAL' PROFIT MAKING CONCERN OR HUG E OR 'MEGA' TURNOVER COMPANY'. RELIANCE IS ALSO PLACED ON THE DECISION OF ITAT SPECIAL BENCH DECISION IN CASE OF MAERSK GLOBAL CENTRES (INDIA) PRIVATE LIMITED (TS - 74 - ITAT - 2014 (MUM) - TP).RELIANCE IS ALSO PLACED ON THE RECENT DECISION OF HON'BLE ITAT, DELHI BENCH IN THE CASE OF FIS GLOBAL SOLUTIONS LTD [2018] 94 TAXMANN.COM 344 (DELHI - TRIB.) WHEREIN IT WAS HELD THAT 'WHEN AVERAGE PLI OF COMPORAB L ES, CONSISTING OF COMPANIES HAVING SIMILAR OR HIGH OR LOW TURNOVER, IS CONSIDERED FOR BENCHMARKING, EFFECT OF DIFFERENT VOLUMES OF TURNOVER IS AUTOMATICALLY IRONED OUT. THEREFORE/SIMPLY EXCLUDING THE COMPARABLE BECAUSE TURNOVER OF THIS COMPANY IS MORE THAN RS. 100 CRORE IS NOT A PRO P ER REASON'. THE DECISION IN CASE OF FIS GLOBAL SOLUTION S LTD ALSO CONSIDERS TO THE DECISION OF DELHI HIGH COURT IN CHRYISCAPITAL ADVISORS INDIA PVT LTD. THEREFORE, IT IS HUMBLY SUBMITTED THAT THE EXCLUSION OF FOUR COM PARABLES AS DEMANDED BY THE ASSESSEE IS DEVOID OF MERIT. 4.3 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF HYUNDIA MOTOR INDIA ENGG. PVT. LTD. (SUPRA) EXCLUDED THE SAID COMP ANY AS COMPARABLE FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER: 8 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. 11.1 WE ARE IN AGREEMENT WITH THE CONTENTIONS OF THE COMPARABILITY ON TURNOVER RATIO OF ASSESSEE WITH THIS COMPANY ON THE GROUND THAT ASSESSEE'S TURNOVER IS ABOUT RS.15.79 CRORES, AS A GAINST TURNOVER OF RS.1016 CRORES OF THE INFOSYS. WE ARE ALSO OF THE VIEW THAT OTHER CONTENTIONS WITH REGARD TO THE BRAND VALUE AND BRAND BUILDING EXERCISE, HAVING HUGE ASSET BASE, CAN BE CONSIDERED TO ARRIVE AT THE CONCLUSION THAT INFOSYS BPO IS FUNCTIONA LLY NOT SIMILAR TO THAT OF ASSESSEE. INFOSYS BPO STANDS ON ITS OWN AS AN EXCLUSIVE BPO OF THE INFOSYS TECHNOLOGIES AND IN EARLIER YEARS, GENERALLY INFOSYS BPO IS EXCLUDED IN MANY OF THE CASES. CONSIDERING THESE ASPECTS, WE ARE OF THE OPINION THAT EVEN THOU GH THE PROFITS OF THE INFOSYS BPO LTD. IS REASONABLE AND NO SUPER PROFITS ARE EARNED, BECAUSE OF ITS BIG BRAND VALUE THIS COMPANY HAS TO BE EXCLUDED ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY ON FAR ANALYSIS. THEREFORE, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. RESPECTFULLY, F OLLOWING THE SAME, WE DIRECT THE AO TO EXCLUDE THE SAID COMPANY AS COMPARABLE. 4.4 AS REGARDS TCS ESERVE LTD. , LD. AR SUBMITTED THAT THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE COMPANY AS IT HAS FUNCTIONAL DISSIMILARITY AS WELL AS DIVERSIFIED BUSINESS AND HAS HIGH TURNOVER OF RS. 1578 CRORES. HE RELIED ON VARIOUS C ASES INCLUDING THE CASE OF HYUNDAI MOTOR INDIA ENGG. PVT. LTD. VS. DCIT, HYDERABAD IN ITA NO. 87/HYD/2017 FOR AY 2012 - 13. 4.5 . LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 4.6 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF HYUNDIA MOTOR INDIA ENGG. PVT. LTD. (SUPRA) EXCLUDED THE SAID COMPANY AS COMPARABLE FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER: 11.2.2. WE FIND THAT THE ASSESSEE'S C ONTENTIONS ABOUT THE PRESENCE OF 'BRAND VALUE' AND OWNING OF 'INTANGIBLES' IS SUPPORTED BY THE EVIDENCE ON RECORD. HOWEVER, AS REGARDS THE EXTRAORDINARY EVENT OR EXCEPTIONAL CIRCUMSTANCE THERE IS NO MATERIAL PLACED BEFORE US BY THE LD. COUNSEL FOR THE ASSE SSEE. THEREFORE, MERELY BECAUSE THE TPO IN ANOTHER CASE HAS HELD THAT THERE IS AN EXTRAORDINARY EVENT FOR WHICH THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES, IT CANNOT BE EXCLUDED. SUCH CLAIM HAS TO BE SUPPORTED BY EVIDENCE ON 9 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. RECORD. AS RE GARDS THE FUNCTIONAL DISSIMILARITY AND HUGE TURNOVER AND BRAND VALUE IS CONCERNED WE FI ND T HAT THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2009 - 10 WHILE CONSIDERING THE COMPARABILITY OF THE ASSESSEE WITH INFOSYS BPO LTD., HAS TAKEN NOTE OF THE POSSESSION OF THE BRAND VALUE AND INTANGIBLES WHICH INFLUENCED THE FINANCIAL RESULTS OF THE COMPANY. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES P. LTD., (2013) 219 TAXMAN 26 (DEL.), HELD THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AN D WIPRO CANNOT BE CONSIDERED AS COMPARABLE TO SMALLER COMPANIES LIKE ASSESSEE THEREIN. IN THE CASE BEFORE THE HON 'BLE HIGH COURT (SUPRA), THE TURNOVER OF THE ASSESSEE WAS ABOUT RS.15.79 CRORES AS AGAINST THE TURNOVER OF RS.1 0 16 CRORES OF THE INFOSYS. C ONSIDERING THESE FACTS, THE HON'BLE HIGH COURT HAD DIRECTED FOR EXCLUSION OF INFOSYS BPO BECAUSE OF ITS BRAND VALUE ARID ALSO ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY A ND HUGE TURNOVER. THOUGH, THE COMPANY BEFORE US IS TCS E - SERVICE LTD., AND NOT INFOSYS BPO, WE FIND THAT THE TURNOVER OF THE ASSESSEE COMPANY FOR THIS ASSESSMENT YEAR IS AROUND RS.50 CRORES AS AGAINST THE TURNOVER OF TCS E - SERVE LIMITED OF RS.1405.10 CRORES. THEREFORE, FOLLOWING THE TURNOVER FILTER AS WELL AS TAKING NOTE OF THE FACT THAT IT OWNS AND POSSESSES BRAND VALUE A ND INTANGIBLES AS COMPARED TO THE ASSESSEE WHICH DOES NOT OWN SUCH ASSETS, WE DIRECT THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. ACCORDINGLY, ASSESSEE'S GROUNDS OF APPEAL NO.6 IS PARTLY ALLOWED. RESP ECTFULLY, F OLLOWING THE SAID DECISION, WE DIRECT THE AO/TPO TO EXCLUDE THE SAID COMPANY AS COMPARABLE. 5. AS REGARDS GROUND NO. 6 REGARDING REJECTION OF COMPARABLE COMPANIES, THE TPO OBSERVED THAT THE COMPANY CRYSTAL VOXX LTD., FAILED THE SERVICE INCOME FILTER AT ENTITY LEVEL AND HAS PERSISTENT LOSSES AT SEGMENT LEVEL AND HENCE NOT CONSIDERED. THE DR P ALSO UPHELD THE ACTION OF THE TPO. 5.1 BEFORE US, THE LD. AR SUBMITTED THAT THE SAID COMPANY IS FUNCTIONALLY SIMILAR AND SATISFIES ALL THE FILTERS APPLIED BY THE TPO. HE RELIED ON THE FOLLOWING CASES: 1. M/S HARSCO INDIA SERVICES PVT. VS. DCIT, ITA NO. 2176/HYD/2017 FOR AY 2013 - 14 2.M/S HYUNDIA MOTOR INDIA ENGG. PVT. LTD. VS. DCIT , ITA NO. 87/HYD/2017. 10 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. 5.2 ON THE OTHER HAND, LD. DR IN HIS WRITTEN SUBMISSION S TATED THAT THE ON THE DEMAND TO INCLUDE CRYSTAL VOXX LTD., IT IS HUMBLY SUBMITTED THAT THE SAID COMPANY FAILED SERVICE INCOME FILTER AT ENTITY LEVEL AND FAILS PERSISTENT LOSS FILTER AT SEGMENTAL LEVEL AS MENTIONED BY TPO AND THE SAME CANNOT BE CONSIDERED AS COMPARABLE. 5.3 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN ASSESSEES OWN CASE FOR AY 2013 - 14, WITH REGARD TO THE INCLUSION OF THE SAID COMPANY CRYSTAL VOXX LTD., THE COORDINATE BENCH OBSERVED AS UNDER: 79. AS REGARDS CRYSTAL VOXX LTD IS CONCERNED, THE TPO HAS REJECTED THIS COMPANY ON THE GROUND THAT IT DID APP EAR IN THE SEARCH ANALYSIS OF THE TPO AND THE DRP HAS CONFIRMED THE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE ANNUAL REPORT OF THE COMPANY TO SUBMIT THAT THIS COMPANY IS ALSO A BPO COMPANY AND THERE IS ONLY A SINGLE SEGMENT AND HENCE SHOULD BE CONSIDERED AS A COMPARABLE. 20. AS SEEN FROM THE PAPER BOOK FILED BY THE ASSESSEE, THE ANNUAL REPORT OF THE COMPANY IS AVAILABLE IN THE PUBLIC DOMAIN AND THE ASSESSEE HAD SUBMITTED THE SAME DURING THE ASSESSMENT PROCEEDINGS. SINCE CRYS TAL VOXX LTD IS ENGAGED IN ONLY SEGMENT, BPO, AND IT ALSO SATISFIED THE OTHER FILTERS ADOPTED BY THE TPO, WE DEEM IT FIT AND PROPER TO DIRECT THE TPO TO VERIFY THE COMPARABILITY OF THIS COMPANY. THEREFORE, THE MATTER IS REMITTED TO THE FILE OF THE TPO FOR FRESH ANALYSIS'. FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE DIRECT THE TPO TO VERIFY THE COMPARABILITY OF THIS COMPANY. THEREFORE, THE MATTER IS REMITTED TO THE FILE OF THE TPO FOR FRESH ANALYSIS. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 6 . AS REGARDS GROUND NO. 9 REGARDING ADJUSTMENT FOR RISK DIFFERENCES, THE LD. AR SUBMITTED THAT THE LEARNED TPO/DRP OUGHT TO HAVE ACCEPTED THAT THE MARKET RISK ADJUSTMENT SUBMITTED BY THE ASSESSEE BASED ON THE METHOD ADOPTED BY THE ITAT IN THE CASE OF PHILI PS SOFTWARE CENTRE PVT. LTD. FOR THIS PROPOSITION, H E RELIED ON THE FOLLOWING CASES: 11 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. 1. HELLOSOFT INDIA PVT. LTD. IT APPEALS NO. 645/HYD/2010. 2. SSL TTK LTD. ITA NO. 1953/MDS/2011 6.1 LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIE S. 6.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE CASE OF HELLOSOFT INDIA PVT. LTD. ( SUPRA), THE COORDINATE BENCH OF THIS TRIBUNAL OBSERVED AS UNDER: 17. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES IN THIS REGARD. THE MA TERIALS ON RECORD CLEARLY PROVE THE FACT THAT THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER. IT HAS TRANSACTIONS ONLY WITH ITS AE. IT IS ALSO A FACT THAT ALL THE RISKS LIES WITH THE AE. DIFFERENT BENCHES OF THE TRIBUNAL HAVE ALSO TAKEN A DIVERGENT VIEW ON THI S ISSUE. THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN THE CASE OF SIMONTECH (SUPRA) HAS HELD THAT NO SEPARATE ADJUSTMENT IS REQUIRED ON ACCOUNT OF RISK AND FUNCTIONAL DIFFERENCE, THE INCOME - TAX APPELLATE TRIBUNAL DELHI BENCH IN THE CASE OF SONY INDIA (P.) LTD. (SUPRA) HAS HELD THAT DEDUCTION ON ACCOUNT OF OWNERSHIP OF INTANGIBLES, RISK FACTORS CAN BE ALLOWED. IN AFORESAID VIEW OF THE MATTER, WE ARE INCLINED TO ACCEPT THE VIEW FAVORABLE TO THE ASSESSEE. WE THEREFORE UPHOLD THE DIRECTION OF THE CIT(A) I N THIS REGARD IN ALLOWING THE BENEFIT OF RISK ADJUSTMENTS AT 1%. ACCORDINGLY, THE GROUND RAISED BY THE DEPARTMENT IS DISMISSED. FOLLOWING THE SAID DECISI ON, WE DIRECT THE AO/TPO TO ALLOW THE RISK ADJUSTMENT IN ACCORDANCE WITH THE RULE 10B(1) (E) CONSIDERING THE FACT THAT ASSESSEE IS A CAPTIVE SERVICE PROVIDER TO ITS AES. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. AS R EGARDS GROUND NO. 11 REGARDING MAT CREDIT, LD. AR SUBMITTED THAT ASSESSEE HAS MAT CREDIT TO THE EXTENT OF RS. 40,23,521/ - AND AO HAS NOT ALLOWED THE SAME WHILE COMPUTING THE TAX LIABILITY FOR THIS AY. ACCORDINGLY, WE DIRECT THE AO TO VERIFY THE CLAIM OF T HE ASSESSEE AND ALLOW THE MAT CREDIT AS PER LAW. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 12 ITA NO. 119 /HYD/1 7 HARSCO INDIA SERVICES PVT. LTD., HYD. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH , 201 9 SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 29 TH MARCH, 201 9 KV C OPY TO: - 1) M/S HARSCO INDIA SERVICES PVT. LTD., BUILDING NO. 3, 2 ND FLOOR, ILABS CENTRE, UNIT NO. 18, SOFTWARE UNITS LAYOUT, MADHAPUR, HYDERABAD 500 0 81 2) DC IT, CIRCLE 2 (2), 5 TH FLOOR, SIGNATURE TOWERS, OPP. BOTANICAL GARDEN, KONDAPUR , IT TOWERS, HYDERABAD 3) DRP - 1 , BENGALURU 4 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 5 ) GUARD FILE