Inductis India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1203/DEL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4184 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARAMITA M BISWAS
• Keywords: Depreciation; Transfer pricing; International transaction; Rule of consistency; Earning of tax free income; Wholly owned subsidiary; Notional interest
• Section: 92D; 14A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1203/DEL/2017 ASSTT. YEAR: 2012-13 INDUCTIS INDIA PVT. LTD., 414, 4 TH FLOOR, DLF JASOLA TOWER B, PLOT NO. 10 & 11, DDA DISTRICT CENTRE, JASOLA, NEW DELHI-110044 (PAN: AAACI8497C) VS ACIT, CIRCLE-12(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VISHAL KALRA, ADV. RESPONDENT BY: MS PARAMITA M. BISWAS, CIT D R DATE OF HEARING: 21.05.2018 DATE OF PRONOUNCEMENT: 20.08.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE FINAL ASSESSMENT ORDER PASSED SUBSEQUENT TO THE DIR ECTIONS OF THE LD. DISPUTES RESOLUTION PANEL (DRP) FOR ASSESSMENT YEAR 2012- 13. 2.0 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A WHOLLY OWNED SUBSIDIARY OF INDUCTIS LLC, US, WHICH IS IN T URN A WHOLLY OWNED SUBSIDIARY OF INDUCTIS INC. THE ASSESSEE PRO VIDES ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 2 INFORMATION TECHNOLOGY (IT) ENABLED BACK OFFICE RES EARCH AND DATA ANALYTICS SERVICES TO ITS ASSOCIATED ENTERPRIS ES (AE) WHICH INCLUDES BACK OFFICE RESEARCH INVOLVING DATA COLLEC TION/COLLATION, DATA PROCESSING, SYNTHESIS AND ANALYSIS AND GRAPHIC S CREATION. THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH THE ASSOCIATED ENTERPRISES DURING THE YEAR UNDER CO NSIDERATION WERE AS UNDER:- I) IT-ENABLED BACK OFFICE RESEARCH AND DATA ANALYSIS RS. 50,97,48,542/- II) REIMBURSEMENT OF EXPENSES RECEIVED BY THE COMPANY RS. 8,23,09,998/- III) REIMBURSEMENT OF EXPENSES BY THE COMPANY ON ACCOUNT OF EMPLOYEE STOCK OPTION PLAN ISSUED TO THE EMPLOYE ES OF THE COMPANY RS. 21,67,376/- 2.1 THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN M ETHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM) AND OP/ OC RATIO WAS TAKEN AS THE PROFIT LEVEL INDICATOR (PLI) IN TH E TNMM ANALYSIS. THE ASSESSEE HAD TAKEN ITSELF AS THE TES TED PARTY AND THE PLI WAS COMPUTED AT 19.41%. THE ASSESSEE CHOSE A SET OF NINE COMPARABLES WITH A PLI OF 22.41%. THUS, THE A SSESSEE CONSIDERED ITS INTERNATIONAL TRANSACTION TO BE AT A RMS LENGTH. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 3 2.2 THE RETURN OF INCOME WAS FILED DECLARING AN INC OME OF RS. 16,42,41,218/-. IN VIEW OF THE INTERNATIONAL TRANS ACTIONS ENTERED INTO BY THE ASSESSEE, A REFERENCE WAS MADE TO THE T RANSFER PRICING OFFICER (TPO). THE TPO DREW A FINAL SET OF NINE COMPARABLES WITH AN AVERAGE PLI OF 26.24% AND PROPO SED AN ADJUSTMENT OF RS. 13,20,31,648/- WITH RESPECT TO AR MS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. 2.3 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. DRP AND RAISED OBJECTIONS AGAINST THE TRANSFER PRICING ADJUSTMENT AS WELL AS AGAINST THE DISALLOWANCES MADE UNDER CORPORATE TAX IN THE DRAFT ASSESSMENT ORDER. SUBSEQUENT TO THE DIRECTIONS OF THE LD. DRP, THE FINAL ASSESSMENT ORDER WAS PASSED BY MAKING AN ADDITION OF RS. 16,74,76,422/- ON ACCOUNT OF ADJUSTMENT IN THE ALP WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS. THE DRP ALSO PARTIALLY UPHELD THE DISALLOWANCE MADE U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) AND AS PER THE DIRECTIONS, THIS DISALLOWANCE WAS COMPUTED AT RS. 4,69,227/-. THE A SSESSMENT WAS COMPLETED AT AN INCOME OF RS. 33,21,86,867/-. 2.4 NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT A GAINST THE FINAL ASSESSMENT ORDER AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 4 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD. ASSESS ING OFFICER ('AO') IS BAD IN LAW. 2. THE LD. DISPUTE RESOLUTION PANEL ('DRP') HAS INADVERTENTLY REJECTED SPECIFIC GROUND RAISED BY TH E APPELLANT DURING DRP PROCEEDINGS IN RESPECT OF SEEK ING ADJUSTMENT CLAIMED ON ACCOUNT OF DIFFERENCE IN THE RATE OF DEPRECIATION CHARGED BY THE COMPARABLES VIS-A-VI S APPELLANT'S RATE OF DEPRECIATION. THE APPELLANT HAS FILED A RECTIFICATION APPLICATION WITH THE HON'BLE DRP REQUESTING APPROPRIATE ADJUDICATION ON THE SAME, WH ICH IS PENDING. 3. THE LD. AO/ LD. TPO ERRED ON FACTS AND IN LAW I N ENHANCING THE INCOME OF THE APPELLANT BY RS. 8,22,89,042 HOLDING THAT THE INTERNATIONAL TRANSACT IONS PERTAINING TO PROVISION OF IT ENABLED SERVICES DO N OT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO HAVE GROSSLY ERRED IN: 3.1. DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING ('TP') DOCUMENTAT ION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 ('RULES ') AS WELL AS THE FRESH SEARCH AND IN PARTICULAR MODIFYIN G/ REJECTING THE FILTERS APPLIED BY THE APPELLANT; 3.2. DISREGARDING MULTIPLE YEAR/ PRIOR YEARS' DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR [(I.E. FINANCIAL YEAR ('F Y') 2011-12] DATA FOR COMPARABLE COMPANIES SHOULD BE US ED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 3.3. REJECTING THE ECONOMIC AND COMPARABILITY ANALYSIS IN THE TP DOCUMENTATION/ FRESH SEARCH AND IN CONDUC TING A REVISED COMPARABILITY ANALYSIS BASED ON APPLICATI ON OF ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 5 THE FOLLOWING ADDITIONAL/ REVISED FILTERS IN DETERM INING THE ALP: 3.3.1. EXCLUSION OF COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E. NOT MARCH 31, 2012); 3.3.2. EXCLUSION OF COMPANIES HAVING EMPLOYEE COST LESS THAN 25% OF THE OPERATING COST; 3.3.3. EXCLUSION OF COMPANIES WHOSE SERVICE INCOME IS LESS THAN RS 1 CRORE (AS AGAINST COMPANIES HAVING Z ERO SALES OR CEASED BUSINESS OPERATIONS AND WERE INACTI VE); 3.3.4. EXCLUSION OF COMPANIES WITH EXPORT SALES THAT ARE LESS THAN 75% OF THEIR TOTAL REVENUE (AS AGAINST EX PORT SALES TO SALES LESS THAN 25% APPLIED BY THE APPELLA NT). 3.4. NOT APPROPRIATELY CONSIDERING THE FUNCTIONS, ASSETS AND RISK PROFILE OF THE COMPANIES USED FOR COMPARIS ON WITH THE APPELLANT, THEREBY INCLUDING IN THE FINAL COMPARABLE SET CERTAIN COMPANIES WITH COMPLETELY DIFFERENT FUNCTIONAL PROFILE; 3.5. EXCLUDING CERTAIN COMPANIES CONSIDERED BY THE APPELLANT IN ITS TP DOCUMENTATION/ FRESH SEARCH ON ARBITRARY/ FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 3.6. UNDERTAKING NEGATIVE WORKING CAPITAL ADJUSTMENT FOR THE COMPUTATION OF ARM'S LENGTH PRICE; 3.7. INCLUDING COMPANIES HAVING ABNORMAL MARGINS/ VOLATILE OPERATING MARGINS IN THE FINAL COMPARABLES ' SET, THAT SIGNIFY HIGH ELEMENT OF ENTREPRENEURIAL RISK, THEREBY NOT APPRECIATING THE RISK PROFILE OF THE SERVICES R ENDERED BY THE APPELLANT AND NOT ALLOWING RISK ADJUSTMENT T O THE APPELLANT; 3.7.1. WITHOUT PREJUDICE, THAT IF RISK ADJUSTMENT I S NOT ALLOWED TO COMPENSATE FOR RISK FREE ACTIVITIES OF T HE ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 6 APPELLANT AND HENCE CONSIDERED IT TO BE RISK BEARIN G, IN THAT CASE APPROPRIATE TESTED PARTY FOR THE ARM'S LE NGTH ANALYSIS SHOULD BE THE APPELLANT'S OVERSEAS ASSOCIA TED ENTERPRISE ('AES'); 3.8. CONSIDERING REIMBURSEMENT OF EXPENSES RECEIVED AS PART OF THE CORE TRANSACTION OF THE ASSESSEE AND RE- COMPUTING THE PLI AFTER CONSIDERING IT AS PART OF T HE OPERATING REVENUE AND OPERATING COST, THUS, IN EFFE CT PROPOSING THAT A MARK-UP IS REQUIRED TO BE EARNED O N SUCH NON-CORE, NON-VALUE ADDING PASS THROUGH TRANSACTIONS. 4. THE LD. AO/ LD. TPO ERRED ON FACTS AND IN LAW I N ENHANCING THE INCOME OF THE APPELLANT BY RS. 38,24, 938 HOLDING THAT THE ALLEGED INTERNATIONAL TRANSACTIONS PERTAINING TO OUTSTANDING RECEIVABLES DO NOT SATISF Y THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO HAVE GROSSLY ERRED IN: 4.1. RE-CHARACTERIZING THE OUTSTANDING RELATED PARTY RECEIVABLE FROM OVERSEAS AES BEYOND 90 DAYS PERIOD AS SHORT TERM LOANS ADVANCED TO THE AES; 4.2. DISREGARDING THE BUSINESS/ COMMERCIAL ARRANGEMENT BY NOT APPRECIATING THE FACT THAT UNLIK E A LOAN OR BORROWING, OUTSTANDING RECEIVABLE IS NOT AN INDEPENDENT TRANSACTION WHICH CAN BE VIEWED ON STANDALONE BASIS AND NEEDS TO BE EXAMINED WITH THE COMMERCIAL TRANSACTION AS A RESULT OF WHICH THE DEB IT BALANCE HAS COME INTO EXISTENCE; 4.3. REJECTING THE APPELLANT'S CONTENTION THAT INDEPENDENTLY BENCHMARKING THE OUTSTANDING RECEIVABLES OF THE APPELLANT BY CONSIDERING AN INTE REST RATE FOR COMPARABILITY DOES NOT AMOUNT TO THE APPLI CATION OF COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD OR ANY OF THE 'METHOD' DEFINED IN THE ACT; ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 7 4.4. WITHOUT PREJUDICE TO THE ABOVE, DISREGARDING THE FACT THAT UNDERTAKING WORKING CAPITAL ADJUSTMENT (A S DIRECTED BY THE LD. DRP WHILE MAKING ADJUSTMENT ON PROVISION OF IT ENABLED SERVICES) TAKES INTO ACCOUN T THE IMPACT OF OUTSTANDING RECEIVABLES. 3.0 THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMITTE D THAT GROUND NO. 1 WAS GENERAL IN NATURE AND GROUND NOS. 2 AND 3 (3.1 TO 3.7) INCORPORATE THE ASSESSEES CHALLENGE TO COM PARABLES/ COMPANIES WHICH THE ASSESSEE WAS EITHER SEEKING TO BE EXCLUDED OR INCLUDED. IT WAS FURTHER SUBMITTED BY THE LD. A R THAT THE ASSESSEE WAS ALSO CHALLENGING THE DENIAL OF DEPRECI ATION ADJUSTMENT IN MARGIN COMPUTATION OF COMPARABLES AS WELL AS WAS CHALLENGING THE NEGATIVE CAPITAL WORKING ADJUSTMENT . THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE WAS ALSO CHALLE NGING CONSIDERATION/REIMBURSEMENT RECEIVED FROM AES AS PA RT OF OPERATING REVENUE AND OPERATING COST WHILE COMPUTIN G MARGIN OF THE ASSESSEE. THE LD. AR ALSO SUBMITTED THAT THE A SSESSEE WAS ALSO CHALLENGING THE ADJUSTMENT PERTAINING TO INTER EST ON OUTSTANDING REVENUES AS WELL AS DISALLOWANCE U/S 14 A OF THE ACT. 3.1 THE LD. AR SUBMITTED THAT THE ASSESSEE HAD RAIS ED A SPECIFIC GROUND DURING THE PROCEEDINGS BEFORE THE LD. DRP IN RESPECT OF THE ASSESSEE SEEKING ADJUSTMENT CLAIMED ON ACCOUNT OF DIFFERENCE IN THE RATE OF DEPRECIATION CHARGED BY THE COMPARAB LES VIS-A-VIS ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 8 THE RATE OF DEPRECIATION BEING CHARGED BY THE ASSES SEE COMPANY. THE LD. AR SUBMITTED THAT THE ASSESSEE WAS CHARGING DEPRECIATION ON STRAIGHT LINE METHOD AND THE COMPAR ABLES WERE ALSO CHARGING DEPRECIATION ON STRAIGHT LINE METHOD. HOWEVER, THE ASSESSEE DEPRECIATED ITS ASSETS AT A RATE HIGHER TH AN THE RATES PRESCRIBED UNDER SCHEDULE XIV OF THE COMPANIES ACT, 1956 WHEREAS THE COMPARABLES CONSIDERED BY THE TPO ADOPT ED THE RATES AS PRESCRIBED UNDER THE COMPANIES ACT, 1956, THEREBY CHARGING A LOWER RATE OF DEPRECIATION. THE LD. AR SUBMITTED THAT BOTH THE TPO AS WELL AS THE LD. DRP HAD DENIED THE ADJUSTMENT ON ACCOUNT OF DEPRECIATION ON THE GROUND THAT THE A SSESSEE HAD FAILED TO FURNISH THE MARGIN COMPUTATIONS OF THE CO MPARABLE COMPANIES TAKING INTO ACCOUNT THE DEPRECIATION CHAR GED BY THE ASSESSEE. THE LD. AR DREW OUR ATTENTION TO THE REL EVANT PAGES IN THE PAPER BOOK AND SUBMITTED THAT THE DETAILED WORK ING IN THIS REGARD WAS DULY SUBMITTED BEFORE THE TPO AS WELL AS THE LD. DRP. THE LD. AR SUBMITTED THAT IF THIS DEPRECIATION ADJU STMENT WAS ALLOWED ON THE MARGINS OF THE COMPARABLES SELECTED BY THE TPO, THEN THE AVERAGE MARGIN WOULD COME TO 16.58%. IT W AS FURTHER SUBMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR I. E. ASSESSMENT YEAR 2011-12, THE LD. DRP, IN ASSESSEES OWN CASE, HAD ACCEPTED ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 9 THE ASSESSEES CLAIM FOR DEPRECIATION ADJUSTMENT. IT WAS ALSO SUBMITTED THAT THE LD. DRP HAD GIVEN A SIMILAR DIRE CTION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2014-15 ALS O. THE LD. AR PLACED RELIANCE ON THE ORDER OF THE ITAT DELHI B ENCH IN THE CASE OF EXLSERVICE.COM VS. ACIT REPORTED IN 152 ITD 778 (DEL) WHEREIN THE ITAT DELHI BENCH HAD ALLOWED ASSESSEES CLAIM FOR DEPRECIATION ADJUSTMENT. 3.2 THE LD. AR FURTHER SUBMITTED THAT THE LD. DRP H AD INADVERTENTLY ISSUED DIRECTIONS FOR PROVIDING WORKI NG CAPITAL ADJUSTMENT TO THE ASSESSEE ALTHOUGH THE ASSESSEE HA D NOT RAISED ANY GROUND OF OBJECTION IN THIS REGARD BEFORE THE L D. DRP. IT WAS SUBMITTED THAT SUBSEQUENT TO THE DIRECTIONS OF THE LD.DRP, THE TPO, AFTER COMPUTING THE AVERAGE MARGIN OF ALL THE COMPARABLES AT 24.27% WORKED OUT THE NEGATIVE WORKING CAPITAL A DJUSTMENT AT 8.19% THEREBY WORKING OUT THE DIFFERENCE IN ALP AT 32.46%. THE LD. AR PLACED RELIANCE ON A NUMBER OF JUDICIAL PREC EDENTS TO SUPPORT HIS CLAIM THAT THE NEGATIVE WORKING CAPITAL ADJUSTMENT WAS NOT WARRANTED IN THE ASSESSEES CASE. 3.3 THE LD. AR FURTHER SUBMITTED THAT THE REIMBURSE MENT OF EXPENSES RECEIVED FROM THE AES WERE IN THE NATURE O F EXPENSES INCURRED BY THE ASSESSEE ON BEHALF OF THE ASSOCIATE D ENTERPRISES ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 10 AND SINCE THESE COSTS ESSENTIALLY COMPRISED THIRD P ARTY COSTS, THESE REIMBURSEMENTS WERE CONSIDERED TO BE AT ARMS LENGTH BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. HOWEVE R, POST THE DIRECTIONS OF THE LD. DRP, THE TPO CONSIDERED THE REIMBURSEMENTS RECEIVED TO BE PART OF THE OPERATING REVENUE AS WELL AS OPERATING COST RESULTING IN THE MARGIN OF T HE ASSESSEE BEING COMPUTED AT 16.29%. IT WAS FURTHER SUBMITTED THAT THESE REIMBURSEMENTS RECEIVED WERE MERE PASS THROUGH COST S WHICH SHOULD BE EXCLUDED WHILE COMPUTING THE OPERATING MA RGINS OF THE ASSESSEE. ALTERNATIVELY, IT WAS SUBMITTED THAT SIMI LAR ADJUSTMENT WITH RESPECT TO THE REIMBURSEMENTS SHOULD BE MADE I N THE CASE OF COMPARABLES ALSO. THE LD. AR PLACED RELIANCE ON A N UMBER OF JUDICIAL PRECEDENTS TO SUPPORT HIS AVERMENT THAT RE IMBURSEMENTS SHOULD BE EXCLUDED WHILE COMPUTING THE OPERATING MA RGINS OF THE ASSESSEE. 3.4 WITH RESPECT TO THE ADJUSTMENT MADE BY THE TPO ON ACCOUNT OF NOTIONAL INTEREST ON RECEIVABLES, THE LD. AR SUB MITTED THAT SUCH AN ADJUSTMENT WAS NOT WARRANTED IN THE ASSESSE ES CASE AS THE ASSESSEE COMPANY WAS A DEBT FREE COMPANY. THE LD. AR SUBMITTED THAT SIMILAR ADJUSTMENT HAD BEEN DELETED IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11 BY ITAT DELHI B ENCH. THE ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 11 LD. AR ALSO PLACED RELIANCE ON NUMEROUS OTHER JUDIC IAL PRECEDENTS IN SUPPORT OF HIS CLAIM THAT NO ADJUSTME NT WAS WARRANTED ON ACCOUNT OF NOTIONAL INTEREST ON RECEIV ABLES IN CASE OF DEBT FREE COMPANIES. 3.5 WITH RESPECT TO THE COMPARABLES BEING SOUGHT TO BE EXCLUDED BY THE ASSESSEE, THE CONTENTIONS OF THE LD. AR WERE AS UNDER:- (I) ECLERX SERVICES LTD: IT WAS SUBMITTED BY THE LD. AR THAT THIS COMPANY WA S FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY AS ECLERX WAS ENGAGED IN THE BUSINESS OF PROVIDING KNOWLEDGE PROC ESSING OUTSOURCING (KPO) SERVICES AND IT WAS ENGAGED IN PR OVIDING BUSINESS/DATA ANALYTICS AND CUSTOMIZED PROCESS SOLU TION FOR CLIENTS IN FINANCIAL SERVICES, MANUFACTURING, RETAI L, MEDIA, TRAVEL AND HOSPITALITY. IT WAS FURTHER SUBMITTED THAT ECL ERX PROVIDED SERVICES THROUGH TWO BUSINESS UNITS, VIZ. FINANCIAL SERVICES AND SALES AND MARKETING SERVICES BUT NO SEGMENTAL DATA WAS AVAILABLE IN THE ANNUAL REPORT OF THIS COMPANY. IT WAS ALSO SUBMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT Y EAR 2011-12, THE LD. DRP HAD EXCLUDED THIS COMPANY ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT WAS F URTHER SUBMITTED ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 12 THAT SIMILARLY IN ASSESSMENT YEAR 2014-15, THE LD. DRP HAD EXCLUDED ECLERX ON ACCOUNT OF FUNCTIONAL DISSIMILAR ITY. THE LD. AR ALSO AGITATED THE INCLUSION OF THIS COMPANY BY T HE TPO BY STATING THAT THE TURNOVER OF THIS COMPANY WAS MORE THAN NINE TIMES THE ASSESSEES TURNOVER. (II) ACCENTIA TECHNOLOGIES LIMITED: THE LD. AR SUBMITTED THAT THIS COMPANY HAD A DIFFER ENT BUSINESS PROFILE THAN THAT OF THE ASSESSEE COMPANY AS ACCENT IA WAS ENGAGED IN OFFERING SERVICES RELATED TO MEDICAL TRA NSCRIPTION AND DISCREET REPORTABLE TRANSCRIPTION, MEDICAL BILLING, PRACTICE MANAGEMENT CONSULTING, MEDICAL CODING, RECEIVABLES MANAGEMENT AND SOFTWARE AS A SERVICE. THE LD. AR SUBMITTED TH AT APART FROM THE SERVICES, ACCENTIA WAS ALSO OFFERING SOFTWARE P RODUCTS LIKE INSTAKARE, INSTAPMS, INSTASCRIBE, INSTA DRT, INSTAW EB, INSTABILL, INSTAEMR AND INSTAVIEW. IT WAS FURTHER SUBMITTED T HAT IN VIEW OF SEGMENTAL DATA NOT BEING AVAILABLE, ACENTIA HAD BEE N REJECTED IN THE CASES OF AVAYA INDIA (P) LTD., VODAFONE INDIA S ERVICES P. LTD. AND EXEVO INDIA (P) LTD. BY THE DELHI BENCHES OF TH E ITAT. THE LD. AR ALSO SUBMITTED THAT DURING THE YEAR UNDER CO NSIDERATION ACCENTIA HAD LAUNCHED EIGHT DIFFERENT PRODUCTS AND THERE WAS AMALGAMATION/ACQUISITION DURING THE YEAR WHICH WARR ANTED ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 13 EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COM PARABLES IN THE CASE OF THE ASSESSEE. (III) TCS E-SERVE LTD: THE LD. AR SUBMITTED THAT THIS COMPANY RENDERED BOT H BUSINESS PROCESS OUTSOURCING (BPO) SERVICES AS WELL AS KPO S ERVICES AND ALSO PROVIDED SUPPORT SERVICES FOR BOTH DATA AND VO ICE PROCESSES WHEREAS THE ASSESSEE COMPANY WAS ONLY ENGAGED IN PR OVIDING BACK OFFICE INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND DATA ANALYTICS SERVICE TO ITS ASSOCIATED ENTERPRISE S. IT WAS FURTHER SUBMITTED THAT THE SIZE OF TCS E-SERVE LTD. AS WELL AS ITS TURNOVER WAS SIGNIFICANTLY HIGHER THAN THAT OF THE ASSESSEE COMPANY WHICH WAS APPROXIMATELY MORE THAN 31 TIMES OF THE ASSESSE ES TURNOVER. IT WAS FURTHER SUBMITTED THAT TCS E-SERVE LTD. OWNE D INTANGIBLES IN THE FORM OF SOFTWARE LICENCES WHICH WAS NOT SO I N THE CASE OF THE ASSESSEE COMPANY. THE LD. AR ALSO SUBMITTED TH AT THE EMPLOYEE COST BASE OF TCS E-SERVE LTD. WAS 19 TIMES MORE THAN THE ASSESSEES EMPLOYEE COST BASE. THE LD. AR PLAC ED RELIANCE ON A NUMBER OF ORDERS OF ITAT DELHI BENCHES WHEREIN TC S E-SERVE LTD. HAD BEEN REJECTED AS A COMPARABLE ON ACCOUNT O F BEING A GIANT COMPANY, HIGH SCALE OF OPERATIONS, BRAND VALU E ASSOCIATED WITH THE COMPANY AND HIGH-END NATURE OF SERVICES. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 14 (IV) ACROPETAL TECHNOLOGIES LTD (SEGMENT): THE LD. AR SUBMITTED THAT THIS COMPANY WAS ALSO NOT FUNCTIONALLY COMPARABLE COMPANY AS ACROPETAL TECHNO LOGIES LTD. WAS ENGAGED IN PROVIDING HEALTHCARE SERVICES WHICH INCLUDED INNOVATION, PATIENT LIFE CYCLE MANAGEMENT, PHYSICIA N AND CLINICAL LIFE CYCLE MANAGEMENT, HOSPITAL ADMINISTRATION MANA GEMENT, DRUG DISCOVERY AND ADMINISTRATION MANAGEMENT AND DI SEASE LIFE CYCLE MANAGEMENT. THE LD. AR ALSO DREW OUR ATTENTI ON TO THE ANNUAL REPORT OF THE COMPANY AND SUBMITTED THAT SEG MENTAL REPORTING WAS NOT AVAILABLE. IT WAS ALSO SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THERE WERE EXTRAORDINARY EVENTS IN ACROPETAL TECHNOLOGIES LTD. AS THIS COMPANY HAD ACQ UIRED TWO US BASED COMPANIES. THE LD. AR ALSO SUBMITTED THAT AC ROPETAL TECHNOLOGIES LTD. UNDERTOOK SUBSTANTIAL RESEARCH AN D DEVELOPMENT ACTIVITIES AND HAD ALSO BEEN MAKING CON SISTENT INVESTMENT IN DEVELOPING INTELLECTUAL PROPERTY WHIC H WAS NOT SO IN THE CASE OF THE ASSESSEE. RELIANCE WAS PLACED ON SO ME ORDERS OF THE ITAT DELHI BENCHES WHEREIN THIS COMPANY WAS REJ ECTED ON THE GROUND THAT IT WAS PROVIDING KPO SERVICES AND ALSO FOR THE REASON OF EXTRAORDINARY EVENTS. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 15 3.6 THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE WAS PRAYING FOR INCLUSION OF R SYSTEMS INTERNATIONAL LTD. WHICH WAS REJECTED BY THE TPO ON THE GROUND OF DIFFERENT FINANCIAL YEA R ENDING. THE LD. AR SUBMITTED THAT THE FINANCIAL RESULTS OF R SY STEMS INTERNATIONAL LTD. FOR THE YEAR ENDED 31.3.2012 COU LD BE DERIVED FROM THE FINANCIAL RESULTS AVAILABLE ON THE COMPANY S WEBSITE. THE LD. AR PLACED RELIANCE ON THE JUDGMENT OF THE HONB LE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MCKINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. IN ITA NO. 217/20 14 WHEREIN THE HONBLE DELHI HIGH COURT HAD HELD THAT IF THE C OMPARABLE IS FUNCTIONALLY THE SAME AS THAT OF THE TESTED PARTY, THEN THE SAME CANNOT BE REJECTED MERELY ON THE GROUND THAT DATA F OR ENTIRE FINANCIAL YEAR WAS NOT AVAILABLE. THE LD. AR SUBMI TTED THAT FROM THE DATA AVAILABLE ON WEBSITE, THE RESULTS FOR THE FINANCIAL YEAR CAN BE EXTRAPOLATED. RELIANCE WAS PLACED ON NUMERO US ORDERS OF THE ITAT DELHI BENCHES WHEREIN R SYSTEMS INTERNATIO NAL LTD. WAS DIRECTED TO BE INCLUDED AS A COMPARABLE IRRESPECTIV E OF DIFFERENT FINANCIAL YEAR ENDING. 3.7 ARGUING AGAINST THE DISALLOWANCE OF RS. 4,69,22 7/- MADE U/S 14A OF THE ACT, THE LD. AR SUBMITTED THAT SECTI ON 14A R/W RULE 8D COULD NOT BE INVOKED WHEN NO SATISFACTION H AD BEEN ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 16 RECORDED BY THE ASSESSING OFFICER SO AS TO ESTABLIS H A REASONABLE NEXUS BETWEEN EXPENDITURE DISALLOWED AND DIVIDEND I NCOME EARNED. IT WAS FURTHER SUBMITTED THAT IN THE ASSES SEES CASE, THE DIVIDEND WAS AUTOMATICALLY CREDITED TO ASSESSEES A CCOUNT WITHOUT ANY EFFORT AS THE ASSESSEE HAD INVESTED IN MUTUAL F UNDS IN ICICI LIQUIDITY PLAN WHEREIN THE DIVIDEND WAS AUTOMATICAL LY RE-INVESTED WITH WEEKLY FREQUENCIES. THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE DID NOT HAVE ANY BORROWINGS WHICH COULD BE SAID TO HAVE BEEN USED FOR MAKING THE INVESTMENT IN THE MUTUAL F UNDS. IT WAS REITERATED BY THE LD. AR THAT THE ASSESSING OFFICER HAD NOT GIVEN ANY SPECIFIC REASON FOR NOT AGREEING WITH THE CLAIM OF THE ASSESSEE REGARDING NO EXPENDITURE HAVING BEEN INCURRED ON EA RNING THE EXEMPT INCOME AND, THUS, THE PROVISIONS OF RULE 8D( 2)(III) WERE ERRONEOUSLY INVOKED. 4. IN RESPONSE, THE LD. CIT DR PLACED EXTENSIVE REL IANCE ON THE OBSERVATIONS AND COMMENTS OF THE TPO AS WELL AS THE DIRECTIONS OF THE LD. DRP. IT WAS SUBMITTED THAT THE LD. DRP HAD DEALT WITH THE OBJECTIONS OF THE ASSESSEE IN A METHODICAL AND JUDICIOUS MANNER AND THERE WAS NO LEGAL INFIRMITY IN THE SAME . THE LD. CIT DR VEHEMENTLY ARGUED THAT THE FINAL ASSESSMENT ORDE R PASSED SUBSEQUENT TO THE DIRECTIONS OF THE LD. DRP NEEDED TO BE UPHELD. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 17 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS FAR AS THE ISSUE O F ADJUSTMENT WITH RESPECT TO DEPRECIATION IS CONCERNED, IT IS SE EN THAT THE LD. DRP IN ITS DIRECTIONS FOR ASSESSMENT YEAR 2011-12, VIDE ORDER DATED 21.12.2015, HAD DIRECTED THE TPO TO ALLOW DEP RECIATION ADJUSTMENT IN TERMS OF THE ORDER OF THE ITAT IN THE CASE OF EXLSERVICE.COM VS. ACIT REPORTED IN TII-313-ITAT-DE L-TP. SIMILARLY FOR ASSESSMENT YEAR 2014-15, THE LD. DRP, VIDE ITS ORDER DATED 6.4.2018, DIRECTED THE TPO TO VERIFY THE CLAI M OF THE ASSESSEE AND RE-COMPUTE THE MARGINS. THE LD. DRP H AS ALSO NOTED IN ITS DIRECTIONS FOR ASSESSMENT YEAR 2014-15 THAT THE ADJUSTMENT WITH RESPECT TO DEPRECIATION HAD ALSO BE EN UPHELD BY THE ITAT IN ASSESSEES GROUP ENTITYS CASE FOR ASSE SSMENT YEARS 2004-05, 2005-06, 2007-08 AND 2010-11. IT IS ALSO SEEN THAT THE DELHI BENCH OF THE ITAT IN THE CASE OF EXLSERVICE.C OM VS. ACIT (SUPRA) WHILE CONSIDERING AN IDENTICAL ISSUE HAS OB SERVED IN PARA 5.23 OF THE SAID ORDER AS UNDER:- 5.23. TURNING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE METHOD OF CHARGING DEPRECIATION, BOTH BY T HE ASSESSEE AND ITS COMPARABLES, IS BY AND LARGE THE S AME THAT IS SLM. THE ASSESSEE IS SEEKING ADJUSTMENT ONL Y DUE TO HIGHER RATES OF DEPRECIATION CHARGED BY IT U NDER SLM WITH THE LOWER RATES OF DEPRECIATION CHARGED BY FOUR COMPARABLE COMPANIES, OTHER THAN MAPRO INDUSTRIES L TD. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 18 AND KARVY CONSULTANTS LTD. IN VIEW OF ABOVE DISCUSS ION, WE HOLD THAT THE OPERATING PROFIT MARGINS OF THESE FOUR COMPARABLE COMPANIES SHOULD BE RECOMPUTED BY THE TPO/AO IN LINE WITH THE RATES OF DEPRECIATION CHARG ED BY THE. ASSESSES UNDER SLM. TO PUT IT SIMPLY, THE AMO UNT OF DEPRECIATION OF THE FOUR COMPARABLE COMPANIES ON THEIR ASSETS SHALL ALSO BE RECOMPUTED UNDER THE SLM ALONE AS PER THE RATES AT WHICH THE ASSESSEE HAS PROVIDED DEPRECIATION. IN DOING SO, IF THE COMPARAB LE COMPANIES HAVE CHARGED DEPRECIATION AT A LOWER RATE IN COMPARISON WITH THE ASSESSEE, THEN SUITABLE INCREAS E SHOULD HE MADE TO THEIR AMOUNT OF DEPRECIATION AN D IF THE COMPARABLES HAVE CHARGED DEPRECIATION AT A HIGH ER RATE IN COMPARISON WITH THE ASSESSEE ON SOME OF THE ASSETS, THEN SUITABLE REDUCTION SHOULD BE MADE IN T HE AMOUNT OF THEIR DEPRECIATION. HERE IT IS SIGNIFICAN T TO NOTE THAT ONE OF THESE FOUR COMPANIES, NAMELY NUCLEUS NETSOFT AND GIS INDIA LTD HAS CHARGED DEPRECIATION ON ALL ITS ASSETS UNDER SLM EXCEPT FOR COMPUTERS, ON W HICH IT PROVIDED DEPRECIATION ON WRITTEN DOWN VALUE BASI S. THE TPO SHOULD SEE IF HE CAN CORRECTLY DEDUCE THE AMOUNT OF DEPRECIATION, ON THE BASIS OF DATA AVAILA BLE FOR THE YEAR ON COMPUTERS ALSO UNDER SLM. IF DUE TO ONE REASON OR THE OTHER, SUCH PRECISE CALCULATION I S NOT POSSIBLE, THEN NO ADJUSTMENT SHOULD BE CARRIED OUT IN THE CALCULATION OF THE OPERATING PROFITS OF THIS COMPAN Y, EVEN ON OTHER ITEMS OF ASSETS. ORDINARILY, WE WOULD HAVE ORDERED FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES IN THE EVENT OF NO POSSIBILITY OF COMPU TING DEPRECIATION ON COMPUTERS UNDER THE SLM BY CONVERTI NG IT FROM W.D.V. METHOD, BECAUSE OF THIS BEING A MATE RIAL FACTOR AND NOT QUANTIFIABLE. BUT SINCE NEITHER THE ASSESSEE NOR THE REVENUE SEEK THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES, WE CANNOT SUO MOTU ORDER SO. WE, THEREFORE, SUM UP OUR CONCLUSION ON THIS ASPECT OF THE MATTER BY HOLDING THAT IF THE AS SESSEE AS WELL AS THE COMPARABLE COMPANIES ARE USING THE S LM AND THERE IS A DIFFERENCE IN THE RATES OF DEPRECIAT ION CHARGED BY THEM, THEN THERE IS A NEED TO MAKE SUITA BLE ADJUSTMENT TO THE PROFITS OF THE COMPARABLES. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 19 5.0.1 THEREFORE, KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY AND ALSO RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE COORDINATE BENCH, WE DIRECT THE TPO TO EXAMINE THE FACTS AND ALLOW THE DEPRECIATION ADJUSTMENT TO THE ASSESSEE. ACCORDINGLY, THIS GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES . 5.1 COMING TO THE ISSUE OF THE ASSESSEES CHALLENGE TO THE DIRECTIONS OF THE LD. DRP IN GRANTING WORKING CAPIT AL ADJUSTMENT TO THE ASSESSEE WITHOUT THE ASSESSEE RAISING ANY OB JECTION REGARDING THE SAME BEFORE THE LD. DRP AND, CONSEQUE NTLY, THE SAME RESULTING IN NEGATIVE WORKING CAPITAL ADJUSTME NT BEING MADE BY THE TPO/ASSESSING OFFICER (AO), WE FIND THA T THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF I TAT HYDERABAD BENCH IN THE CASE OF ADAPTEC (INDIA) (P.) LTD. VS. ACIT REPORTED IN (2015) 57 TAXMANN.COM 307 (HYDERABAD TRIB.). IN TH IS CASE, THE ITAT HYDERABAD BENCH HAS OPINED THAT THERE WAS NO N EED FOR MAKING ANY NEGATIVE WORKING CAPITAL ADJUSTMENT WHEN THE ASSESSEE DID NOT CARRY ANY WORKING CAPITAL RISK. U NDISPUTEDLY, THE ASSESSEE HAD NOT PRAYED FOR ANY WORKING CAPITAL ADJUSTMENT IN THE MEMORANDUM OF OBJECTIONS FILED BEFORE THE LD . DRP AND, THUS, THE LD. DRP HAS EXCEEDED ITS JURISDICTION BY ISSUING DIRECTIONS ON AN ISSUE WHICH WAS NOT A SUBJECT MATT ER BEFORE IT. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 20 IN VIEW OF THE FACTS BEING UNDISPUTED REGARDING THE ASSESSEE NOT HAVING RAISED ANY OBJECTION BEFORE THE LD. DRP REGA RDING WORKING CAPITAL ADJUSTMENT TO BE GRANTED TO IT AS WELL AS I N VIEW OF THE SETTLED JUDICIAL PRECEDENT, WE DIRECT THE TPO TO RE -COMPUTE THE MARGINS WITHOUT MAKING ANY NEGATIVE WORKING CAPITAL ADJUSTMENT. ACCORDINGLY, THIS GROUND STANDS ALLOWE D. 5.2 COMING TO THE ISSUE OF REIMBURSEMENTS WHICH WER E CONSIDERED AS PART OF OPERATING REVENUE AS WELL AS OPERATING COST WHILE COMPUTING THE MARGIN OF THE ASSESSEE, WE NOTE THAT THIS ISSUE HAS BEEN PARTIALLY RESOLVED VIDE ORDER PASSED U/S 154 DATED 11.01.2017 WHEREIN THE PROPOSED ADJUSTMENT OF RS. 163,651,494/- HAS BEEN REDUCED TO RS. 82,289,042/- AFTER RECTIFYING THE ORDER OF NOT CONSIDERING THE REIMBUR SEMENTS AS PART OF THE REVENUE. IT IS THE PLEA OF THE ASSESSEE THA T THE REIMBURSEMENTS SHOULD BE EXCLUDED BOTH FROM THE MAR GINS OF THE ASSESSEE AS WELL AS OF THE COMPARABLES. THE LD. AR HAS ALSO DRAWN OUR ATTENTION TO COPY OF EVIDENCES FILED BEFO RE THE TPO/ASSESSING OFFICER IN THIS REGARD. WHILE AGREEI NG WITH THE CONTENTION OF THE ASSESSEE THAT REIMBURSEMENTS SHOU LD BE EXCLUDED FROM BOTH THE ASSESSEES MARGINS AS WELL A S THE MARGINS OF THE COMPARABLES, WE DEEM IT FIT TO RESTORE THE I SSUE TO THE ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 21 TPO/ASSESSING OFFICER FOR EXAMINING THE CLAIM OF TH E ASSESSEE IN LIGHT OF THE EVIDENCES FILED BY THE ASSESSEE ALONG WITH ITS APPLICATION DATED 21.1.2016 AND SUBMITTED TO THE OF FICE OF DCIT TP- 2(3)(1) NEW DELHI. THUS, THIS GROUND STANDS AL LOWED FOR STATISTICAL PURPOSES. 5.3 COMING TO THE ISSUE OF NOTIONAL INTEREST BEING CHARGED ON RECEIVABLES, WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT IN ASSESSEES OWN CAS E FOR ASSESSMENT YEAR 2010-11 WHEREIN IN ITA NO. 2075/DEL /2015, VIDE ORDER DATED 6.3.2018, THE COORDINATE BENCH OF THE TRIBUNAL HAS, RELYING ON THE ORDER OF THE COORDINATE BENCH O F THE TRIBUNAL IN KADIMI TOOL MANUFACTURING CO. PVT. LTD. VS. DCIT REPORTED IN (2017) 87 TAXMANN.COM 42 (DELHI TRIBUNAL), WHICH WA S CONFIRMED BY THE HONBLE DELHI HIGH COURT AS WELL T HE HONBLE APEX COURT, HAS HELD THAT ADJUSTMENT MADE BY THE TP O/LD. DRP ON ACCOUNT OF INTEREST ON RECEIVABLES WAS NOT SUSTA INABLE IN THE EYES OF LAW IN THE CASE OF THE ASSESSEE AS, UNDISPU TEDLY, THE TAXPAYER IS A DEBT FREE COMPANY. DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. CIT DR COULD NOT POI NT OUT ANY REASON AS TO WHY THIS BENCH SHOULD TAKE A VIEW DIFF ERENT FROM THE VIEW TAKEN BY THE COORDINATE BENCH IN THE ORDER FOR ASSESSMENT ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 22 YEAR 2010-11 IN ASSESSEES OWN CASE AS AFORESAID. RESPECTFULLY, FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH IN ASS ESSEES OWN CASE FOR AY 10-11 AND IN VIEW OF PRINCIPLE OF CONSI STENCY, WE HOLD THAT THE ADJUSTMENT MADE BY THE TPO/LD. DRP ON ACCO UNT OF INTEREST ON RECEIVABLES IS NOT SUSTAINABLE IN THE E YES OF LAW IN THE CASE OF THE ASSESSEE AS, UNDISPUTEDLY, THE TAXPAYER IS A DEBT FREE COMPANY. CONSEQUENTLY, THIS GROUND IS ALSO ALLOWED IN FAVOUR OF THE ASSESSEE. 5.4 COMING TO THE ISSUE OF COMPARABLES, OUR OBSERVA TIONS AND FINDINGS ARE AS UNDER:- (I) ECLERX SERVICES LTD: THE ASSESSEE HAS CHALLENGED THE INCLUSION OF THIS C OMPANY AS COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY D IFFERENT FROM THE ASSESSEE COMPANY AS ECLERX SERVICES LTD. IS ENG AGED IN THE BUSINESS OF PROVIDING KPO SERVICES WHEREAS THE ASSE SSEE COMPANY IS A CAPTIVE IT ENABLED SERVICE PROVIDER. WE NOTE THAT THE LD. DRP, IN ASSESSEES CASE FOR ASSESSMENT YEAR 2011-12 AS WELL AS FOR ASSESSMENT YEAR 2014-15, IN ITS DIRECTI ONS, HAS EXCLUDED ECLERX SERVICES LTD. ON ACCOUNT OF BEING F UNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY. WE NOTE THAT THE LD. DRP ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 23 HAS DIRECTED EXCLUSION OF THIS COMPANY FOR ASSESSME NT YEAR 2011- 12 IN PARA 4.4.4 OF ITS DIRECTIONS BY PLACING RELIA NCE ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN RAMPGRE EN SOLUTION PVT. LTD. VS. CIT REPORTED IN 2015-TII-33-HC-DEL-TP AND HAS ALSO NOTED THAT THE BUSINESS ACTIVITIES OF THE ASSESSEE WERE MATERIALLY DIFFERENT FROM THE BUSINESS ACTIVITIES OF THE ECLER X SERVICES LTD. THE LD. CIT DR DURING THE COURSE OF PROCEEDINGS BEF ORE US, COULD NOT JUSTIFY THE INCLUSION OF THIS COMPANY IN THIS Y EAR AS THE FUNCTIONAL PROFILE OF THE ASSESSEE HAS REMAINED THE SAME. THEREFORE, IN VIEW OF THE PRINCIPLE OF CONSISTENCY AS WELL AS IN VIEW OF SETTLED JUDICIAL PRECEDENT, WE DIRECT EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. (II) ACCENTIA TECHNOLOGIES LIMITED: THE ASSESSEE HAS OBJECTED TO THIS COMPANY BEING INC LUDED IN THE FINAL SET OF COMPARABLES ON THE GROUND THAT THIS CO MPANY HAS A DIFFERENT BUSINESS PROFILE FROM THAT OF THE ASSESSE E COMPANY. IT IS UNDISPUTED THAT THE ASSESSEE IS A CAPTIVE IT ENABLE D SERVICE PROVIDER WHEREAS AS PER THE ANNUAL REPORT OF ACCENT IA TECHNOLOGIES LIMITED, THIS COMPANY IS ENGAGED IN OF FERING MEDICAL TRANSCRIPTION RELATED SERVICES AND IS ALSO INTO CRE ATION AND SELLING OF SOFTWARE PRODUCTS. WE ALSO NOTE AFTER GOING THR OUGH THE ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 24 ANNUAL REPORT OF THIS COMPANY THAT NO SEGMENTAL RES ULTS ARE AVAILABLE IN THE CASE OF THIS COMPANY. WE NOTE THA T THE BUSINESS ACTIVITY OF ACCENTIA TECHNOLOGIES LIMITED HAS BEEN CLASSIFIED UNDER A SINGLE SEGMENT NAMELY HEALTHCARE RECEIVABL ES MANAGEMENT AND THE PROFIT AND LOSS ACCOUNT OF THIS COMPANY SHOWS INCOME FROM THREE SOURCES VIZ. MEDICAL TRANSC RIPTION, MEDICAL DISCREET REPORTABLE TRANSCRIPTION AND BILLI NG AND CODING. WE NOTE THAT THIS COMPANY WAS EXCLUDED AS A COMPARA BLE BY THE DELHI BENCH OF THE ITAT IN THE CASE OF B.C. MANAGEM ENT SERVICES (P) LTD. REPORTED IN (2017) 83 TAXMANN.COM 346 (DEL HI TRIBUNAL) ON THE GROUND THAT THIS COMPANY WAS ENGAGED IN SOFT WARE DEVELOPMENT, NO SEPARATE SEGMENTS IN THE FINANCIALS WERE AVAILABLE, THERE WAS SIGNIFICANT INCREASE IN REVENU E AND THERE WERE ACQUISITIONS BY THIS COMPANY. THE ORDER OF THE TRIBUNAL WAS UPHELD BY THE HONBLE DELHI HIGH COURT IN PCIT VS. B.C. MANAGEMENT SERVICES (P) LTD. REPORTED IN (2018) 253 TAXMAN 138 (DELHI). THIS COMPANY ALSO DIRECTED TO BE EXCLUDED BY THE DELHI BENCH OF THE ITAT IN THE CASE OF AVAYA INDIA (P) LT D. VS. ACIT REPORTED IN (2015) 64 TAXMANN.COM 452 (DELHI TRIBUN AL), VODAFONE INDIA SERVICES P. LTD. REPORTED IN (2016) 66 TAXMANN.COM 246 (DELHI TRIBUNAL) AND EXEVO INDIA (P ) LTD. VS. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 25 ITO REPORTED IN 72 TAXMANN.COM 339 (DELHI TRIB.) ON THE GROUND THAT SEGMENTAL DATA WAS MISSING. ON SIMILAR REASON ING OF ABSENCE OF SEGMENTAL DATA AND FOLLOWING THE SETTLED JUDICIAL PRECEDENTS, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. (III) TCS E-SERVE LTD: IT IS THE CONTENTION OF THE LD. AR THAT TCS E-SERVE LTD. RENDERS SERVICES WHICH ARE FUNCTIONALLY DISSIMILAR TO THAT OF THE ASSESSEE COMPANY AND WE NOTE THAT THE AVERMENT OF THE AR IS CORRECT IN THIS REGARD. WE ALSO NOTE THAT TCS E-SERVE LTD. HA S A HUGE SCALE OF OPERATIONS AND ENJOYS THE BRAND VALUE ASSOCIATED WITH THE TATA GROUP WHEREAS THE ASSESSEE COMPANY DOES NOT HAVE TH E SAME. WE NOTE THAT TCS E-SERVE LTD HAS BEEN REJECTED AS A COMPARABLE ON ACCOUNT OF BEING A GIANT COMPANY, HIGH SCALE OF OPERATIONS, HIGH BRAND VALUE AND HIGH END NATURE OF SERVICES BY THE ITAT DELHI BENCH IN THE CASE OF B.C. MANAGEMENT SERVICES PVT. LTD. VS. DCIT REPORTED IN (2017) 83 TAXMANN.COM 346 (DELHI T RIB) WHICH WAS LATER CONFIRMED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. B.C. MANAGEMENT SERVICES PVT. LTD. REPO RTED IN (2018) 253 TAXMAN 138 (DEL). SIMILAR VIEW HAS ALSO BEEN T AKEN BY THE ITAT DELHI BENCH IN THE CASE OF ACTIS GLOBAL SERVIC E PVT. LTD. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 26 REPORTED IN (2016)175 TTJ 506, AGILENT TECHNOLOGIES (INTERNATIONAL) PVT. LTD. REPORTED IN (2018) 91 TAX MANN.COM 59 (DELHI TRIB.) AND A HOST OF OTHER CASES. ALTHOUGH THE LD. CIT DR HAS VEHEMENTLY ARGUED FOR INCLUSION OF THIS COMPANY IN THE FINAL SET OF COMPARABLES, KEEPING IN VIEW THE SETTLED JUD ICIAL VIEW IN RESPECT OF THIS COMPANY, WE ARE UNABLE TO AGREE WIT H THE CONTENTION OF THE LD. CIT DR AND WE DIRECT THE EXCL USION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. (IV) ACROPETAL TECHNOLOGIES LTD (SEGMENT): IT HAS BEEN SUBMITTED BY THE LD. AR THAT THIS COMPA NY IS ENGAGED IN PROVISION OF HEALTHCARE SERVICES WHICH INCLUDE E LECTRONIC MEDICAL RECORD, PATIENT LIFE CYCLE MANAGEMENT, PHYS ICAL AND CLINICAL LIFE CYCLE MANAGEMENT, HOSPITAL ADMINISTRA TION MANAGEMENT AND DISEASE LIFE CYCLE MANAGEMENT. IT H AS ALSO BEEN SUBMITTED THAT SEGMENTAL BIFURCATION PERTAINING TO THE VARIOUS REVENUE STREAMS WAS NOT DISCLOSED. WE FIND THAT TH ESE AVERMENTS OF THE AR ARE CORRECT. WE ALSO NOTE THAT THIS COMP ANY WAS DIRECTED TO BE EXCLUDED BY THE ITAT DELHI BENCH IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES PVT. LTD VS. ACIT R EPORTED IN (2018) 89 TAXMANN.COM 440 (DELHI TRIB.) ON THE GR OUND THAT ACROPETAL TECHNOLOGIES LTD. WAS ENGAGED IN PROVISIO N OF HIGH END ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 27 HEALTHCARE SERVICES AND OWNS INTELLECTUAL PROPERTY. IT HAS ALSO BEEN NOTED BY THE ITAT DELHI BENCH THAT THIS COMPAN Y WAS ENGAGED IN SALE OF SOFTWARE PRODUCTW. UNDISPUTEDLY , THE ASSESSEE COMPANY I.E. INDUCTIS INDIA PVT. LTD. IS A CAPTIVE IT ENABLED SERVICE PROVIDER AND, THEREFORE, THIS CANNOT BE COM PARED TO THE SERVICES BEING OFFERED BY ACROPETAL TECHNOLOGIES LT D. WE ALSO NOTE THAT SEGMENTAL DATA IS NOT AVAILABLE FOR THE Y EAR UNDER CONSIDERATION AS IS EVIDENT FROM THE PERUSAL OF THE ANNUAL REPORT WHICH HAS BEEN PLACED ON RECORD. THEREFORE, WE HAV E NO OTHER OPTION BUT TO DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. IT IS DIRECTED ACCORDINGLY. (V) R SYSTEMS INTERNATIONAL LTD: THE ASSESSEE IS SEEKING TO GET THIS COMPANY IN CLUDED AS A COMPARABLE. IT IS SEEN THAT THIS COMPANY WAS REJEC TED AS A COMPARABLE ON THE GROUND THAT THIS COMPANY HAD A DI FFERENT FINANCIAL YEAR ENDING. THE ISSUE OF ACCEPTING A CO MPANY HAVING A DIFFERENT FINANCIAL YEAR ENDING AS A COMPARABLE IS NO MORE RES INTEGRA AND THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MERCER CONSULTING (INDIA) (P) LTD. REPOR TED IN (2017) 390 ITR 615 (P&H) HAS UPHELD THE ORDER OF THE ITAT DELH I BENCH REPORTED IN (2014) 150 ITD 1(DELHI TRIB.) ON THE IS SUE. THE ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 28 HONBLE PUNJAB & HARYANA HIGH COURT HELD THAT THEY WERE ENTIRELY IN AGREEMENT WITH THE DECISION OF THE TRIB UNAL THAT IF THE DATA RELATING TO THE FINANCIAL YEAR O IS STRICTLY A VAILABLE FROM THE ANNUAL ACCOUNTS OF THAT COMPARABLE THEN IT CANNOT B E HELD AS NOT PASSING THE TEST OF SUB RULE (4) OF RULE 10B. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS OPINED THAT RULE 10B(4) DO ES NOT EXCLUDE FROM CONSIDERATION THE DATA OF AN ENTITY ME RELY BECAUSE ITS FINANCIAL YEAR IS DIFFERENT FROM THE FINANCIAL YEAR OF THE ASSESSEE AND FURTHER AS LONG AS THE DATA RELATING T O THE FINANCIAL YEAR IS AVAILABLE, IT MATTERS NOT IF THE FINANCIAL YEAR FOLLOWED IS DIFFERENT. SIMILAR VIEW HAS BEEN TAKEN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MCKINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. REPORTED IN ITA NO . 217/2014. RESPECTFULLY FOLLOWING THE SETTLED JUDICIAL PRECEDE NT, WE DIRECT THE TPO TO INCLUDE THIS COMPANY IN THE FINAL SET OF COM PARABLES AFTER DULY VERIFYING THAT DATA CAN BE REASONABLY AND SATI SFACTORILY COMPILED FOR THE FINANCIAL YEAR ENDING 31 ST MARCH. 5.5 COMING TO THE ISSUE OF DISALLOWANCE OF RS. 4,69 ,227/- U/S 14A R/W RULE 8D IT IS THE CONTENTION OF THE ASSESSE E THAT ALTHOUGH THE ASSESSEE HAD CLAIMED THAT NO EXPENDITU RE HAD BEEN INCURRED IN RELATION TO EARNING OF EXEMPT INCOME, T HE ASSESSING ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 29 OFFICER DID NOT RECORD ANY SATISFACTION BEFORE INVO KING PROVISIONS OF SECTION 14A R/W RULE 8D. A PERUSAL OF THE FINAL ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS MAINTAINED A CONSOLIDATED BANK ACCOUNT WHICH HAS OWN FUNDS AS WELL AS BORROWED FUNDS. THE ASSESSING OFFICER HAS OBSERVED THAT THE PRIMARY ONUS WAS UPON THE ASSESSE E TO PROVE THAT THE SOURCE OF INVESTMENT WAS FROM OWN FUNDS AN D THAT NO PART OF BORROWED FUNDS WERE INVESTED IN THE INVESTM ENT OF MUTUAL FUNDS. THE ASSESSING OFFICER HAS ALSO NOTED THAT N O RECONCILIATION HAS BEEN FILED BY THE ASSESSEE IN RESPECT OF THE AM OUNT AVAILABLE IN THE BANK ACCOUNT RELATING TO OWN FUNDS OR BORROW ED FUNDS AS THE ASSESSEE HAD NOT FURNISHED DAY-WISE BALANCE OF OWN FUNDS AND BORROWED FUNDS ALONG WITH CORRESPONDING ENTRY O F THE INVESTMENT MADE. THE ASSESSING OFFICER HAS, THEREA FTER, PROCEEDED ON AN ASSUMPTION THAT INTEREST BEARING FU NDS COULD ALSO HAVE BEEN UTILIZED FOR MAKING THE INVESTMENT. THE ASSESSEE, ON THE OTHER HAND, HAS SUBMITTED THAT THE INVESTMEN TS WERE MADE IN MUTUAL FUNDS IN ICICI LIQUIDITY PLAN WHEREI N THE DIVIDEND WAS AUTOMATICALLY REINVESTED WITH WEEKLY F REQUENCY AND THERE WERE NO EFFORTS FOR EARNING DIVIDEND INCOME. IT IS ALSO THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE COMPANY DID NOT HAVE ANY ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 30 BORROWINGS AND THE INTEREST EXPENSES AMOUNTING TO R S. 22,279/- APPEARING IN THE PROFIT AND LOSS ACCOUNT PERTAINED TO INTEREST ON ACCOUNT OF DELAY IN PAYMENT OF REVENUE DUES UNDER T HE VARIOUS ACTS. WE HAVE ALSO PERUSED THE BALANCE SHEET OF TH E ASSESSEE COMPANY PLACED ON RECORD AND WE NOTE THAT BOTH AS O N 31.3.2012 I.E. THE YEAR UNDER CONSIDERATION AS WELL AS ON 31. 3.2011 I.E. THE IMMEDIATELY PRECEDING YEAR, THERE WERE NO BORROWED FUNDS IN THE BOOKS OF THE ASSESSEE. THIS LENDS CREDENCE TO THE AVERMENT OF THE ASSESSEE THAT THERE WAS NO BORROWING BY THE ASSESSE E COMPANY AND, THEREFORE, THERE WAS NO QUESTION OF USING BORR OWED FUNDS FOR THE PURPOSE OF INVESTMENT IN THE MUTUAL FUNDS. THE REFORE, IN OVERALL VIEW OF THE FACTS OF THE CASE, WE ARE OF TH E CONSIDERED OPINION THAT THE IMPUGNED DISALLOWANCE U/S 14A OF T HE ACT WAS UNWARRANTED. ACCORDINGLY, WE DIRECT THE DELETION O F THIS DISALLOWANCE. THIS GROUND STANDS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED IN TERMS OF OUR OBSERVATIONS AND DIRECTIONS AS MENTION ED IN THE PRECEDING PARAGRAPHS. ITA NO. 1203/DEL/2017 ASSESSMENT YEAR 2012-13 31 ORDER IS PRONOUNCED IN THE OPEN COURT ON 20 TH AUGUST, 2018. SD/- SD/- (PRAMOD KUMAR ) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20 TH AUGUST, 2018 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER ASSISTANT REGI STRAR DA DATE OF DICTATION DATDATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER DATDATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DA DATE ON WHICH THE APPROVED DRAFT COMES TO THE S R.PS/PS DATDATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATDATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DA DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DA DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DA DATE OF DISPATCH OF THE ORDER