Flextronics Technologies India Private Limited, Tamil Nadu V. DCIT, Bangalore

ITA 1219/BANG/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95373 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR PANDA
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Carry forward of business losses; Principle of natural justice; International transaction; Retrospective amendment; Question of law; Wholly owned subsidiary; Scheme of amalgamation; Unabsorbed depreciation
• Section: 143(3); 234B; 133(6); 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER A ND SHRI G.MANJUNATHA , ACCOUNTANT MEMBER IT (TP) A NO. 1219 /BANG/201 1 (ASSESSMENT YEAR: 20 07 - 08 ) M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT. LTD. PLOT NO.3, PHASE II, SIPCOT INDUSTRIAL PARK, SANDAVELLURE C VILLAGE, SRIPERMBUDUE TALUK, KANCHEEPURAM DIST. TAMILNADU PAN:AAACF5248E APPELLANT VS. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 11(3), BANGALORE. RESPONDENT APPELLANT BY: SHRI AJIT JAIN, CA. RESPONDENT BY: SHRI BIJOY KUMAR PANDA, CIT(DR). DATE OF HEARING : 06 / 1 0/2015. DATE OF PRONOUNCEMENT: 23 / 1 1 /2015. O R D E R PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30/ 9/2011 PASSED U/S 143(3) R.W.S.144C OF THE INCOME - TAX ACT, 1961 [ THE ACT FOR SHORT] PURSUAN T TO THE DIRECTIONS OF THE DRP DATED 26/9/2011. IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 2 OF 43 2. THE ASSESSEE HAS FILED THE CONCISE GROUNDS AS UNDER: GENERAL 1 THE ASSESSMENT ORDER DATED SEPTEMBER 3 0, 2011 PASSED BY THE LEARNED ASSESSING OFFICER ('AO')/ TRANSFER PRICING OFFICER ('TPO') PURSUANT TO THE DIRECTIONS PASSED BY THE HONORABLE DISPUTE RESOLUTION PANEL ('DRP') IS NOT IN ACCORDANCE WITH LAW AND IS CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND IN ANY CASE IN VIOLATION OF THE PRINCIPLE OF EQUITY AND NATURAL JUSTICE AND IS BAD IN LAW. TRANSFER PRICING 2 THE HONORABLE DRP AND THE LEARNED AO HAVE ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE TPO MAKING AN ADJUSTMENT AMOUNTING TO RS 39,779,596 TO THE ARM'S LENGTH PRICE ('ALP') OF THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT, AND UPHOLDING THE ALP OF 27 . 41 PERCENT AS PROPOSED BY THE TPO. IN DOING SO, THE HONORABLE DRP AND LEARNED AO HAVE ERRED IN UPHOLDING THE FOLLO WING ACTION OF THE TPO: 2.1 REJECTING THE TRANSFER PRICING (TP') DOCUMENTATION MAINTAINED AND DETAILED BENCHMARKING ANALYSIS CONDUCTED BY THE APPELLANT; 2.2 DISREGARDING THE MULTIPLE/PRIOR YEAR DATA CONSIDERED BY THE APPELLANT IN DETERMINING THE ALP AND ADOPTING THE FINANCIAL DATA FOR A SINGLE YEAR (I.E. THE FINANCIAL YEAR (FY) 2006 - 07) OF THE COMPARABLE COMPANIES DESPITE THE FACT THAT THE SAME WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING THE TP DOCUMENTATION; 2.3 REJECTING CERTAIN C OMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT IN ITS TP STUDY USING UNREASONABLE COMPARABILITY CRITERIA AND CONTRARY TO FACTS AS EVIDENCED BY THE AUDITED FINANCIAL STATEMENTS OF THE SAID COMPANIES. IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 3 OF 43 2.4 CONDUCTING A FRESH SEARCH BY REJECTING/ MODIFYING FILTERS ADOPTED BY THE APPELLANT. FURTHER, APPLICATION OF ADDITIONAL FILTERS; 2.5 FINALIZING THE TP ORDER WITH COMPANIES AS COMPARABLE TO THE APPELLANT DESPITE SUCH SUCH COMPANIES FAILING THE TEST OF COMPARABILITY ON SOME OR ALL OF THE FACTORS SUCH AS THE INFLUENCE OR EXTRAORDINARY EVENTS, FUNCTIONAL DISSIMILARITY, KPO, DIFFERING TURNOVER/SCALE OF OPERATION, ASSET BASE, RISK PROFILE ETC, AND FAILURE OF TPO S OWN FILTERS; 2.6 USING THE INFORMATION UNDER SECTION 133(6) OF THE ACT, DESPITE SUCH INFORMAT ION BEING NOT AVAILABLE IN PUBLIC DOMAIN AND BEING INCONSISTENT WITH THE INFORMATION AVAILABLE PUBLIC DOMAIN, INCLUDING THE AUDITED FINANCIAL STATEMENTS OF THE COMPARABLE COMPANIES. 2.7 ADOPTING ADDITIONAL COMPARABLE COMPANIES WITHOUT GIVING ANY OPPORT UNITY OF BEING HEARD. 2.8 COMPUTING INCORRECT MARGINS OF THE APPELLANT AND THE COMPARABLE COMPANIES; 2.9 REJECTING THE USAGE OF CONSOLIDATED FINANCIAL STATEMENTS; AND 2.10 NOT GRANTING WORKING CAPITAL/ RISK ADJUSTMENT AS CLAIMED BY THE APPELLANT 3 THE HONORABLE DRP AND THE LEARNED AO/ TPO ERRED IN LAW AND ON FACTS IN NOT GRANTING +/ - 5 PERCENT RANGE BENEFIT. CORPORATE TAX 4 THE HONORABLE DRP HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE AO'S ACTION OF SETTING OFF DOMESTIC LOSSES AGAINST THE I NCOME FROM EXPORT OF BUSINESS. THE HONORABLE DRP HAS ERRED IN LAW BY NOT CONSIDERING THE SUBMISSION IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 4 OF 43 MADE BY THE APPELLANT IN THIS REGARD. 5 THE HONOURABLE DRP HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE AO'S REASONING IN RE - COMPUTING THE RELIEF UNDER SECTION 10A OF THE ACT AND THEREBY COMPUTING THE RELIEF UNDER SECTION 10A OF THE ACT AT NIL (AS AGAINST THE AMOUNT OF RS 68,525,186 CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME). OTHERS 6 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO HAS ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE LOSSES FROM DOMESTIC UNIT WHILE DETERMINING THE TOTAL INCOME OF THE APPELLANT. 7 THE HONORABLE DRP, THE TPO AND THE AO HAVE ERRED IN LAW AND IN FACTS IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. THE ABOVE C ONCISE GROUNDS NEED TO BE READ IN CONJUNCTION WITH THE GROUNDS OF APPEAL THAT FORM A PART OF THE APPEAL PAPERS. THE ACTUAL GROUNDS OF APPEAL HAVE BEEN CONCISED FOR THE PURPOSE OF THE HEARING. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, OMIT, SUBSTITUTE OR A MEND THE ABOVE GROUNDS, AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. EACH OF THE ABOVE OBJECTIONS IS INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS PREFERRED BY THE APPELLANT. 3. GROUND NO.1 AND 2.1 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 4. AT THE TIME OF HEARING, LEARNED AR OF THE ASSESSEE HAS STATED THAT THE ASSESSEE DOES NOT PRESS GROUND NOS.2.2, 2.3, 2.6 TO 2.10 AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LEARNED DEPARTMENTAL REPR ESE NTATIVE HAS RAISED NO OBJECTION IF IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 5 OF 43 THESE G ROUNDS AS PRAYED BY THE ASSESSEE ARE DISMISSED AS NOT PRESSED. ACCORDINGLY, GROUND NOS.2.1, 2.3, 2.6 TO 2.10 ARE DISMISSED BEING NOT PRESSED. 5 . GROUND NO.2.4 AND 2.5 REGARDING TRANSFER PRICING ADJUSTMENT AND COMPARABILITY OF THE COMPANIES SELECTED BY THE TPO. 6 . THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF FLEXTRONICS INTERNATIONAL ASIA PACIFIC LTD., MAURITIUS AND ENGAGED IN THE MANUFACTURING OF PRINTED CIRCUIT BOARD ASSEMBLY WHICH HAS APPLICATIO N IN THE TELECOM, INDUSTRIAL ELECTRONICS AND CONSUMER PRODUCT SEGMENTS. THE ASSESSEE ALSO OPERATES SUPPORT SERVICES DIVISION FOR PROVIDING BACK - OFFICE SERVICES RELATING TO ACCOUNTS, PAYABLE PROCESS AND HUMAN RESOURCE RELATED MAINTENANCE. THE ASSESSEE HAS REPORTED THE FINANCIAL RESULTS AS WELL AS SEGMENTAL DETAILS FOR THE YEAR UNDER CONSIDERATION AS UNDER: FINANCIAL RESULTS OF FTIPL FOR THE FY 2006 - 07 1. OPERATING REVENUES : 415,14,48,082 2. EXPENDITURE : 451,18,01,966 3. PROFIT : ( - ) 4. PBIT/EXPENDITUR E : (1) 7.99% 5. PBIT/INCOME : ( - )8.68% (*) EXCLUDING EXCHANGE LOSS AND INTEREST SEGMENTAL DETAILS AS PER ANNUAL REPORT ARE GIVEN BELOW: IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 6 OF 43 THE ASSESSEE HAS REPORTED INTERNATIONAL TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION AS UNDER : PAID RECEIVED MANUFACTURING SEGMENT A. PURCHASE OF RAW MATERIAL ACCESSORIES 4,59,25,125 B. SALE OF FINISHED GOODS 60,57,284 C. PURCHASE OF FIXED ASSETS 2,90,04,696 I T ENABLED SERVICES: D. SHARED SERVICES 37,66,76,121 OTHERS E. SERVICE CHARGES 1,81,42,089 F. REPAIR SERVICES 1,82,43,110 G. IT LINK CHARGES 1,78,59,983 F. CROSS CHARGES 1,64,98,181 G. RECOVERY OF EXPENSES 7. THE DISPUTE BEFORE US IS ONLY WITH RESPECT TO BPO SEGMENT UNDER WHICH THE ASSESSEE HAS PROVIDED BA CK - SUPPORT OF SERVICES TO ITS AE. THE ENTIRE SERVICES UNDER BPO ARE ONLY TO THE AE OF THE ASSESSEE. THE ASSESSEE HAS BENCH MARKED ITS TRANSACTION BY SELECTING 7 COMPANIES AS COMPARABLE WITH AVERAGE PROFIT MARGIN AT 14.96% ON COST IN COMPARISON TO ASSESSEE S MARGIN AT 15.52% ON OPERATING COST (OC) AND ACCORDINGLY THE ASSESSEE CLAIMED THAT THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE ARE AT ARMS LENGTH. THE COMPANIES SELECTED BY THE ASSESSEE FOR BENCH MARKING ITS INTERNATIONAL TRANSACTIONS ARE AS UNDER: I. ALLSEC TECHNOLOGIES LTD. II. COSMIC GLOBAL LTD. III. DATAMATICS SOFTWORLD PVT. LTD. IV. HCL TECHNOLOGIES LTD. V. R SYSTEMS LTD. VI. SPANCO TELESYSTEMS & SOLUTIONS LTD. VII. TRANSWORKS INFORMATION SERVICES LTD. THE TPO REJECTED TWO OF THE COMPANIES SELECTED BY THE ASSESSEE AS COMP ARABLE AND ACCEPTED 5 OF THE COMPANIES WHICH ARE AS UNDER: IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 7 OF 43 SL. NO. NAME OF THE COMPANY OPERATING MARGIN TO COST (FY 2006 - 07) 1 ALLSEC TECHNOLOGIES LTD. 27.31% 2 COSMIC GLOBAL LTD. 12.40% 3 R SYSTEMS LTD. 20.18% 4 SPANCO TELESYSTEMS & SOLUT IONS LTD. (NOW SPANCO LTD.) 25.81% 5 TRANSWORKS INFORMATION SERVICES LTD. (NOW KNOWN AS ADITYA BIRLA MINACS WORLDWIDE LTD.) 11.98% APART FROM ACCEPTING SOME OF THE COMPANIES SELECTED BY THE ASSESSEE, THE TPO HAS ALSO CARRIED OUT A SEARCH AND ADDED 22 M ORE COMPARABLES. THUS, THE FINAL LIST OF COMPARABLES CONSIDERED BY THE TPO CONSISTING OF 27 COMPANIES IS AS UNDER: SL. NO. COMPANY NAME SALES (RS.CR.) GP TO TOTAL COST% 1 ACCETIA TECHNOLOGIES LTD (SEG.) 16.57 30.61% 2 ADITYA BIRLA MIMI CS WORLDWIDE LTD (EARLIER TRANSWORKS INFORMATION SERVICES LTD) 1968.0 6 11.98% 3 ALLSEC TECHNOLOGIES LTD 113.28 27.31% 4 APEX KNOWLEDGE SOLUTIONS PVT. LTD 6.64 12.83% 5 APPOLLO HEALTHSTREET LTD 47.84 13.55% 6 ASIT C.MEHTA FINANCIAL SERVICES LTD. 6.09 24.21% 7 BODHTREE CONSULTING LTD. (SEG.) 2.94 29.58% 8 CALIBER POINT BUSINESS SOLUTIONS LTD 39.3 21.26% 9 COSMIC GLOBAL LTD 4.28 12.40% 10 DATAMATICS FINANCIAL SERVICES LTD (SEG.) 2.92 5.07% 11 ECLERX SERVICES LTD 86.12 89.33% 12 FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG.) 12.93 8.62% 13 GENESYS INTERNATIONAL CORPORATION LTD 19.7 13.35% 14 HCL COMNET SYSTEMS & SERVICES LTD (SEG.) 260.18 44.99% 15 1 C R A TECHNO ANALYTICS LTD (SEG.) 7.23 12.24% 16 INFORMED TECHNOLOG IES INDIA LTD 4.08 35.56% 17 INFOSYS B P 0 LTD 649.56 28.78% 18 ISERVICES INDIA PVT LTD 16.29 49.47% 19 MAPLE ESOLUTIONS LTD 12.21 34.05% 20 MOLD - TEK TECHNOLOGIES LTD.(SEG.) 11.4 113.49 % 21 R SYSTEMS INTERNATIONAL LTD.(SEG.) 17.34 20.18 % 22 SPANCO LT D. (SEG.) 35 25.81% 23 TRITON CORP. LTD. 53.37 34.93% 24 VISHAL INFORMATION TECHNOLOGIES LTD. 30.6 51.19% 25 WIPRO LTD (SEG.) 939.78 29.70% 26 NITTANY OUTSOURCING SERVIES PVT. LTD. 23.23 11.50% 27 ACCURATE DATA CONVERTERS PVT. LTD. 4.33 50.68% ARI THMETICAL MEAN 30.21% IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 8 OF 43 T HE TPO HAS DETERMINED THE ARITHMETICAL MEAN OF 27 COMPARABLES AT 30.21% AND AFTER ALLOWING THE WORKING CAPITAL ADJUSTMENT, THE ADJUSTED ARITHMETICAL MEAN WAS WORKED OUT BY THE TPO AT 27.41%. ACCORDINGLY, THE TPO HAS PROPOSED AN U PWARD ADJUSTMENT ON ACCOUNT OF ALP OF THE INTERNATIONAL TRANSACTIONS OF RS.3,97,79,596/ - . THE ASSESSEE CHALLENGED THE ACTION OF THE TPO BY RAISING OBJECTIONS BEFORE THE DRP BUT COULD NOT SUCCEED. 8. BEFORE US, LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THOUGH THE ASSESSEE HAS RAISED OBJECTIONS AGAINST THE VARIOUS COMPANIES INCLUDED BY THE TPO IN THE SET OF COMPARABLES, HOWEVER, AT THE FIRST INSTANCE, THE ASSESSEE IS RAISING OBJECTIONS AGAINST THE 8 COMPANIES VIZ . 1. ECLERX SERVICES LTD. 2. HCL COMN ET SYSTEMS & SERVICES LTD.(SEG.) 3. INFOSYS BPO LTD. 4. MAPLE ESOLUTIONS LTD. 5. MOLD - TEK TECHNOLOGIES LTD. 6. TRITON CORP. LTD. 7. VISHAL INFORMATION TECHNOLOGIES LTD.(CORAL HUB LTD.) 8. WIPRO LTD. (SEG.) WE WILL DEAL WITH COMPARABILITY OF EACH O F THE 8 COMPANIES OBJECTED BY THE ASSESSEE AS UNDER: IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 9 OF 43 8. 1 ECLERX SERVICES LTD: THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE HIGH - END SERVICES AND THEREFORE, THIS COMPANY IS BASICALLY A KPO AND NOT A BPO. HE HAS REFERR ED TO ANNUAL REPORT OF THIS COMPANY AT PAGE 26 OF THE PAPER BOOK - II AND SUBMITTED THAT AS IT IS CLEAR FROM THE ANNUAL REPORT THAT THIS COMPANY IS A KNOWLEDGE PROCESS OUTSOURCING (K. P. O) PROVIDING DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO GLOBAL ENTER PRISE CLIENTS. THIS COMPANY SUPPORTS CORE AND COMPLEX ACTIVITIES FOR ITS CLIENTS USING PROPRIETARY PROCESSES AND A SCALABLE OFFSHORE DELIVERY MODEL. THIS COMPANY HAS ACCESS TO THE CAPITAL MARKET AND THEREFORE, THIS COMPANY IS A PUBLIC LISTED KPO COMPANY IN INDIA. THE COMPANY IS ALSO ENGAGED IN CONSULTING SERVICES AND PROCESS OUTSOURCING AS WELL AS IN THE ACTIVITY OF PROCESS RE - ENGINEERING AND AUTOMATION APART FROM MIDDLE OFFICE AND BACK OFFICE SUPPORT TO CAPITAL MARKET. THEREFORE, KEEPING IN THE DIVERSI FIED HIGH - END SERVICES, THIS COMPANY CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF MAERSK GLOBAL SERVICES (147 I TD 83). 8.1.1 ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THIS COMPANY IS UNDISPUTEDLY IN THE BUSINESS OF ITES AND THEREFORE, THE NOMENCLATURE THAT OF IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 10 OF 43 KPO WILL NOT MAKE IT FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8.1.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WE FIND THAT THE COMPANY ECLERX SERVICES LTD. IS ENGAGED IN DIVERSIFIED ACTIVITY OF PROVIDING SERVICES INCLUDIN G ANALYTIC SERVICES AND DATA PROCESS SOLUTIONS TO ITS GLOBAL CLIENTS. THE SERVICE PROVIDED BY ECLERX SERVICES LTD., IS IN VARIOUS AREAS INCLUDING CAPITAL MARKET AND THEREFORE, THE SERVICES ARE IN THE NATURE OF CONSULTANCY AND END TO END SUPPORT THROUGH TR ADE CENTRE INCLUDING TRADE CONFIRMATION, SETTLEMENT, TRANSACTION, MAINTENANCE AND ANALYTIC AND REPORTING. THUS IT IS APPARENT FROM THE NATURE OF THE ACTIVITY OF THIS COMPANY THAT IT IS NOT PROVIDING A SIMPLE SERVICE OF DATA PROCESSING BUT IT IS ENGAGED IN THE ACTIVITY OF PROVIDING HIGH - END SERVICES INVOLVING DECISION MAKING ANALYSIS WHICH REQUIRES THOUGHT PROCESS AND EVALUATION OF VARIOUS FACTS AND FACTORS. FUNCTIONAL COMPARABILITY OF THIS COMPANY WITH THAT OF SIMPLE BPO S SERVICE PROVIDING COMPANY HAS BE EN EXAMINED BY THE SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL SERVICES (SUPRA) IN PARAS.82 & 83 AS UNDER : 82. IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCERNED, THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM OF ANNUAL REPORT FOR FINANCIAL YEAR 20 07 - 08 PLACED AT PAGE 166 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY PROVIDES DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORLD AND IS RECOGNIZED AS EXPERTS IN CHOSEN MARKETS - FINANCIAL SERV ICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE PROVIDING COMPLETE BUSINESS SOLUTIONS BY COMBINING PEOPLE, PROCESS IMPROVEMENT AND AUTOMATION. IT IS CLAIMED TO HAVE EMPLOYED OVER 1500 DOMAIN IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 11 OF 43 SPECIALISTS WORKING FOR THE CLIENTS. IT IS CLAIMED THAT EC LERX IS A DIFFERENT COMPANY WITH INDUSTRY SPECIALIZED SERVICES FOR MEETING COMPLEX CLIENT NEEDS, DATA ANALYTICS KPO SERVICE PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE ENGAGED IN PROV IDING SOLUTIONS THAT DO NOT JUST REDUCE COST, BUT HELP THE CLIENTS INCREASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. M/S ECLERX SERVICES PVT. LTD. IS ALSO CLAIMED TO HAVE A SCALABLE D ELIVERY MODEL AND SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCESS OUTSOURCING AND MANAGEMENT SERVICES ALONG WITH A MULTITUDE OF DA TA AGGREGATION, MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE COMPANY HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY, ALLOWING CUSTOMERS TO BENEFIT FROM FURTH ER COST SAVING AND OUTPUT GAINS WITH BETTER CONTROL OVER QUALITY. KEEPING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PROFILE, WE ARE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGED IN PROVIDING HIGH - END SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW - END SERVICES TO THE GROUP CONCERNS. 83. FOR THE REASONS GIVEN ABOVE, WE ARE OF T HE VIEW THAT IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPANY FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES PVT. LTD. AND MOLD - TEC TECHNOLOGIES LTD., IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPAR ABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. WE, THEREFORE, DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 COMPARABLES FINALLY TAKE N BY THE AO/TPO AS PER THE DIRECTION OF THE DRP. THUS IT IS CLEAR THAT THE SPECIAL BENCH FOUND THAT THIS COMPANY IS NOT COMPARABLE WITH BPO COMPANY WHICH ARE ENGAGED ONLY IN LOW END SERVICES OF DATA PROCESSING. ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUD E ECLERX SERVICES LTD. FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF DETERMINING ALP. IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 12 OF 43 8.1.3 WE FURTHER NOTE THAT THE HON BLE DELHI HIGH COURT IN ITA NO.102 OF 2015 DATED 10/8/2015 HAS CONFIRMED THE VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERKS CENTRE. ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE ECLERX SERVICES LTD . FROM THE LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINING THE ALP. 8.2 HCL COMNET S YSTEM & SERVICES LTD.(SEG.) : THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED TH AT THE ACCOUNTING YEAR OF HCL COMNET SYSTEM & SERVICES LTD.(SEG.) IS ENDING AT DIFFERENT POINTS OF TIME OF YEAR AND THEREFORE, THE FINANCIAL DATA OF THE SAID COMPANY CANNOT BE CONSIDERED AS CONTEMPORANEOUS TO THAT OF THE ASSESSEE WHICH IS FOLLOWING THE FINANCIAL YEAR AS THE ACCOUNTING YEAR. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS: I. SANDSTONE CAPITAL ADVISORS PVT. LTD. (ITA NO.6315/ MUM/2012) II. HAPAG - LLOYD GLOBAL SERVICES PVT. LTD.(ITA NO.8499/ MUM/2010) III. SAVEN TECHNOLOGIE S LTD. (TS - 44 - ITAT - 2014 - HYD - TP) IV. EVONIK INDIA PVT. LTD. (ITA NO.1125/MUM/2014) V. TELELOGIC INDIA PVT.LTD.(ITA NO.166/MUM/2011) VI. HONEYWELL AUTOMATION INDIA LTD. (ITA NO.4/PUNE/08) ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE TPO HAS EXAMINED THE FUNCTIONAL COMPARABILITY OF THIS IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 13 OF 43 COMPANY AND FOUND THAT THIS COMPANY COMPLIES WITH FILTERS APPLIED BY THE TPO. ACCORDINGLY, THIS IS A GOOD COMPARABLE FOR DETERMINING THE ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS IN THE ITES SEGMENT. 8.2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT HCL COMNET SYSTEM & SERVICES LTD.(SEG.) IS FOLLOWING ITS ACCOUNTING YEAR FROM 1 ST JULY TO 30 TH JUNE. FOR THE YEAR UNDER CONSIDERATION, THE FINANCIAL ACCOUNTS ARE PREPARED FOR THE YEAR ENDED ON 30 TH JUNE, 2007. THEREFORE, IT IS CLEAR THAT FOR THE FINANCIAL YEAR UNDER CONSIDERATION, ONLY PARTIAL DATA ARE AVAILABLE FROM 1 ST JULY 2006 TO 31 ST MARCH 2007. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN A SERIES OF DECISIONS AS RELIED UPON BY THE ASSESSEE AND REFERRED (SUPRA). IN THE CASE OF SANDSTONE CAPITAL ADVISORS PVT. LTD. VS. ACIT ( SUPRA), THE TRIBUNAL VIDE ITS ORDER DATED 6/2/2013 HELD IN PARA.10 TO 10.3 AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. THE TPO HAS REJECTED THIS COMPARABLE BECAUSE THE FINANCIAL DATA FOR THE FINANCIAL YEAR 20 07 - 08 WERE NOT AVAILABLE IN THE PUBLIC DOMAIN AND HENCE, IF WAS HELD THAT THIS COMPANY IS NOT A SUITABLE COMPARABLE. THERE IS NO DISPUTE THAT THE DATA FURNISHED BY THE ASSESSEE ARE REGARDING THE FINANCIAL RESULTS AS ON 30.6.2007. THEREFORE, AS FAR AS THE F INANCIAL YEAR 2007 - 08 IS CONCERNED, THE DATA AVAILABLE WERE ONLY FOR 3 MONTHS. 10.1 AS PER RULE 10B(4), THE DATA TO BE USED IN ANALYSING THE COMPARABILITY OF OR UNCONTROLLED IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 14 OF 43 TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO T HE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. THEREFORE, IT IS MANDATORY FOR THE PURPOSE OF COMPARING THE DATA OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION THAT THE SAME SHOULD RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. THE INFORMATION, DATA AND DOCUMENTS SHOULD BE CONTEMPORANEOUS. 10.2 UNDISPUTEDLY, THE FINAL ACCOUNTS OF ARIX CONSULTANTS PVT LTD ARE PREPARED ON 30 TH JUNE; THEREFORE, THE OBJECTION RAISED BY THE TRO HAS MERITS. THE RUNE BENCHES OF THE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD IN ITA NO.4/PN/08 VIDE ORDER DATED 10' , FEB 2009 HAS ALSO TAKEN A SIMILAR VIEW. 10.3 APART FROM THIS, AS IT HAS BEEN FAIRLY CONCEDED BY THE LD SR COUN SEL FOR THE ASSESSEE THAT THERE ARE RELATED PARTY TRANSACTION IN THE CASE OF ARIX CONSULTANTS PVT LTD AS IT IS EVIDENT FROM THE NOTE ON ACCOUNT AT PAGE 89 OF THE PAPER BOOK. THEREFORE, IN VIEW OF THE TACT THAT THIS COMPANY IS HAVING RELATED PARTY TRANSACTI ONS, THE SAME CANNOT BE CONSIDERED AS A PROPER COMPARABLE. WE FURTHER NOTE THAT A SIMILAR VIEW HAS BEEN TAKEN IN ALL OTHER DECISIONS AS RELIED UPON BY THE TRIBUNAL IN THE CASE OF ACIT VS. LOYAL GROTH SERVICES (SUPRA) THE TRIBUNAL VIDE ITS ORDER DATED 2 6/02/2013 HAS HELD IN PARA.7.2 AS UNDER: 7.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THE FINANCIAL YEAR END OF A COMPARABLE CASE MATCHES WITH ASSESSEE, IT CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF DIFFERENT FINANCIAL YEAR ENDINGS ARE D ISTORTED. HE RELIED PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE 01 CAPITAL ADVISORS PRIVATE LIMITED V. AC'IT IN ITA NO 2012. VIDE ITS ORDER DATED 06.02.2013, THE TRIBUNAL, AFTER CONSIDERING THE IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 15 OF 43 PRESCRIPTION OF RULE IOB(4) AND AN ANOTHER CASE THE TRIBUNAL IN HONEYWELL AUTOMATION INDIA LID, HAS MANDATORY FOR THE PURPOSES OF COMPARING THE DATA OF M WPM TRANSACTION WITH AN INTERNATIONAL TRANSACTION THAT THE - TO THE FINANCIAL YEAR ENDING SIMILAR TO THAT OF THE ASSESSEE THE LD.DR CONTENDED THAT SINCE THE CASE OF CMC LIMITED FINANCIAL YEAR ENDING VIS - A - VIS THAT OF THE ASSESSEE, HAVE BEEN EXCLUDED. NO CONTRARY PRECEDENT WAS BROUGHT TO OUR NOTICE BY THE LEARNED AR. IN FACT, THE ARGUMENT ADVANCED BY THIS REGARD WAS NOT SERIOUSLY CHALLENGED BY THE ID. AR. FOLLOWING THE PRECEDENT, WE HOLD THAT THIS CASE SHOULD FROM THE LIST OF COMPARABLES. ACCORDINGLY, BY FOLLOWING SERIES OF DECISIONS OF THE TRIBUNAL ON THE POINT, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS A GOOD COMPARABLE FOR THE PURPOSE OF DETERMINI NG THE ALP. HENCE, THE AO/TPO IS DIRECTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE FOR THE PURPOSE OF DETERMINATION OF ALP. 8.3 INFOSYS TECHNOLOGIESLTD . THE LEARNED AR OF THE ASSESSEE HAS REFERRED TO THE ANNUAL REPORT OF THIS COMPANY AT PA GE 57 OF THE PAPER BOOK AND SUBMITTED THAT THOUGH THIS COMPANY WAS INITIALLY SELECTED BY THE ASSESSEE, HOWEVER, THE ASSESSEE HAS RAISED OBJECTIONS AGAINST THIS COMPANY EVEN BEFORE THE TPO AND FURTHER BEFORE THE DRP. THEREFORE, THIS COMPANY IS FUNCTIONALLY DIFFERENT AND HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE LEARNED AR OF THE ASSESSEE HAS POINTED OUT THAT THIS COMPANY IS HAVING MORE THAN IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 16 OF 43 17000 EMPLOYEES IN COMPARISON TO ONLY 6 EMPLOYEES OF THE ASSESSEE. THEREFORE, EVEN ON THE PARAMETER OF TH E SCALE AND STRENGTH OF EMPLOYEES, THIS COMPANY CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. FURTHER, HE HAS REFERRED TO THE ANNUAL REPORT OF THE COMPANY AND SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THERE IS AMALGA MATION OF PAN FINANCIAL SERVICES INDIA PVT. LTD. W.E.F. 1/4/2008. THE SCHEME OF AMALGAMATION HAS BEEN APPROVED BY THE HON BLE HIGH COURT ON 6/4/2009 AND 10/3/2009. THEREFORE, THERE IS AN EXTRAORDINARY EVENT OF AMALGAMATION DURING THE YEAR UNDER CONSIDERA TION AND HENCE THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE FOR THE PURPOSE OF DETERMINING THE ALP. APART FROM THE ABOVE OBJECTIONS, LEARNED AR OF THE ASSESSEE HAS FURTHER SUBMITTED THAT THIS COMPANY IS ENGAGED IN PROVIDING BUSINESS PROCESS MANA GEMENT SERVICES TO ORGANIZATIONS WHICH ARE PROVIDING SERVICE OF OUTSOURCING BUSINESS PROCESS. THEREFORE, THIS COMPANY IS IN A DIFFERENT KIND OF BUSINESS ACTIVITY IN PROVIDING THE MANAGEMENT SERVICE OF BUSINESS PROCESSES AND IS NOT DIRECTLY PROVIDING ANY B USINESS PROCESS OUTSOURCE SERVICES. THUS, THIS COMPANY CANNOT BE CONSIDERED AS A FUNCTIONALLY COMPARABLE. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THIS COMPANY IS IN THE BU SINESS ACTIVITY OF PROVIDING ITE S AND THEREFORE, IT SATISFIES ALL THE TESTS AND FILTERS APPLIED BY THE TPO. THE FUNCTIONAL COMPARABILITY HAS BEEN EXAMINED BY THE DRP AND IT WAS FOUND IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 17 OF 43 THAT THIS COMPANY IS IN THE SAME LINE OF ACTIVITY UNDER THE CATEGORY OF ITES. HE HAS RELIED UPON THE ORDER O F THE AUTHORITIES BELOW. 8.3.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT IN PARA 16.2.15 OF THE ANNUAL REPORT OF THIS COMPANY, IT HAS BEEN REPORTED THAT THERE WAS AMALGAMATION W.E.F 1/4/2008. THE RELEVANT PART OF THE INFORMATION PROVIDED IN THE ANNUAL REPORT READS AS UNDER: AMALGAMATION OF PAN FINANCIAL SERVICES INDIA PRIVATE LIMITED THE BOARD OF DIRECTORS IN THEIR MEETING HELD ON OCTOBER 6. 2008. APPROVED, SUBJECT TO THE APPROVAL OF THE HONORABL E HIGH COURTS OF KARNATAKA AND CHENNAI, A SCHEME OF AMALGAMATION ('THE SCHEME') TO AMALGAMATE PAN FINANCIAL SERVICES INDIA PRIVATE LIMITED ( - PAN FINANCIAL'), A WHOLLY OWNED SUBSIDIARY OF THE COMPANY ENGAGED IN PROVIDING BUSINESS PROCESS MANAGEMENT OF SERVI CES, WITH THE COMPANY WITH EFFECT FROM APRIL 1. 2008 ('EFFECTIVE DATE'). THE APPROVAL OF THE HIGH COURT WAS RECEIVED ON APRIL 6, 2009 AND FILED WITH THE RESPECTIVE REGISTRAR OF COMPANIES OF KARNATAKA AND TAMILNADU ON APRIL 6, 2009 AND MARCH 10, 2009 RESPEC TIVELY. ACCORDINGLY ON THE SCHEME BECOMING EFFECTIVE, THE FINANCIAL STATEMENT OF PAN FINANCIAL HAS BEEN MERGED WITH THE COMPANY. IT IS CLEAR THAT THERE WAS EXTRAORDINARY EVENT OF AMALGAMATION DURING THE YEAR UNDER CONSIDERATION. THEREFORE, IN VIEW OF THE EXTRAORDINARY DEVELOPMENT OF AMALGAMATION OF ANOTHER COMPANY, THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE FOR THE IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 18 OF 43 ASSESSMENT YEAR UNDER CONSIDERATION. APART FROM THIS, WE FURTHER NOTE THAT AS PER THE SEGMENT REPORTING IN PARA.16.2.21 OF ANNUAL REPORT THIS COMPANY IS PROVIDING BUSINESS PROCESS MANAGEMENT SERVICES AS UNDER: SEGMENT REPORTING THE COMPANY'S OPERATIONS PRIMARILY RELATE TO PROVIDING BUSINESS PROCESS MANAGEMENT SERVICES TO ORGANIZATIONS THAT OUTSOURCE THEIR BUSINESS PROCESSES. ACCORDI NGLY. REVENUES REPRESENTED ALONG INDUSTRY CLASSES COMPRISE THE PRIMARY BASIS OF SEGMENTAL INFORMATION SET OUT IN THESE FINANCIAL STATEMENTS. SECONDARY SEGMENTAL REPORTING IS PERFORMED ON THE BASIS OF THE GEOGRAPHICAL LOCATION OF CUSTOMERS. THE ACCOUNTING PRINCIPLES CONSISTENTLY USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS ARE ALSO CONSISTENTLY APPLIED TO RECORD INCOME IN INDIVIDUAL SEGMENTS. THESE ARE SET OUT IN THE NOTE ON SIGNIFICANT ACCOUNTING POLICIES. THUS IT IS CLEAR THAT THE REVENUE EARNED B Y THIS COMPANY IS FROM THE ACTIVITY INCLUSIVE OF OPERATION PRIMARILY RELATES TO PROVIDING BUSINESS PROCESS MANAGEMENT SERVICES TO OTHER ORGANIZATION ENGAGED IN OUTSOURCING BUSINESS PROCESS. THIS COMPANY IS NOT ENGAGED IN DIRECT ACTIVITY OF BPO BUT IT PROVI DES SERVICE TO BPOS AND THAT TOO MANAGEMENT SERVICE TO BPO. THEREFORE, IN OUR CONSIDERED VIEW, THIS COMPANY IS ENGAGED IN A DIFFERENT NATURE OF ACTIVITY TO THAT OF THE ASSESSEE PROVIDED TO ITS AE. ACCORDINGLY, IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 19 OF 43 WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 8.4 MAPPLE E SOLUTIONS LTD: THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THE FINANCIAL STATEMENTS OF THIS COMPANY CANNOT BE RELIED UPON OWING TO THE DIRECTORS OF THIS COMPANY INVOLVED IN THE FRAUD. HE HAS RELIED UP ON THE FOLLOWING DECISIONS: I. FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. (ITA NO.1086/BANG/2011) II. GOLDMAN SACHS SERVICES PVT. LTD. (ITA NO.1685/ BANG/2012) III. STREAM INTERNATIONAL PVT. LTD.(ITA NO.8290/MUM/2011) ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE HAS OBJECTED TO THE EXCLUSION OF THIS COMPANY AND SUBMITTED THAT WHEN THIS COMPANY IS FUNCTIONALLY SIMILAR TO THE ASSESSEE, THEN INVOLVEMENT OF A DIRECTOR IN SOME ACTIVITY OF FRAUD CANNOT BE RELATED TO THE BUSINESS OF THE COMPANY, UNTIL AND UNLESS THE FRAUD IS COMMITTED IN RESPECT OF THE BUSINESS ACTIVITY OF THE SAID COMPANY. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8.4.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. W E FIND FORCE AND SUBSTANCE IN THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT IN THE ABSENCE OF ANY SPECIFIC ALLEGATION THAT THE ALLEGED FRAUD BY THE DIRECTOR IS IN RESPECT OF BUSINESS ACTIVITY OF THE COMPANY, THE SAID ACTIVITY OF FRAUD BY THE DIRECTOR IN OTHER BUSINESS ACTIVITY NOT IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 20 OF 43 RELATED TO THE BUSINESS OF THE ASSESSEE - COMPANY CANNOT BE TAKEN AS A GROUND FOR DOUBTING THE FINANCIAL STATEMENT OF THE ASSESSEE AND THEREBY EXCLUDING THE SAID COMPANY FROM A LIST OF COMPARABLES. HOWEVER, WE FIND THAT THIS TRI BUNAL IN A NUMBER OF CASES AS RELIED UPON BY THE ASSESSEE, HAS HELD THAT THIS COMPANY CANNOT BE TAKEN AS A GOOD COMPARABLE BECAUSE OF THE REASON THAT THE DIRECTORS OF THE COMPANY WERE INVOLVED IN FRAUD ACTIVITY AND THEREFORE, FINANCIAL STATEMENTS OF THIS C OMPANY CANNOT BE RELIED UPON. IN THE CASE OF FIRST ADVANTAGE OFFSHORE S ERVICES PVT. LTD., (SUPRA) THE TRIBUNAL HAS HELD INPARA.41 AS UNDER: 41. AS FAR AS THE COMPANIES MAPEL ESOLUTION LTD AND TRITON CORP LTD., THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT THESE TWO COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES, AS FOR THE RELEVANT ASSESSMENT YEAR, THEY WERE ALLEGEDLY INVOLVED IN FINANCIAL FRAUD AND RESULTS OF THESE TWO COMPANIES CANNOT BE RELIED UPON. FOR THIS PURPOSE, THE LEARNED C OUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION (CITED SUPRA). ON GOING THROUGH THE SAID ORDER, WE FIND THAT THE HYDERABAD BENCH OF THE TRIBUNAL HAS CONSIDERED THE DECISIO N OF THE TRIBUNAL AT DELHI IN THE CASE OF ITO VS. CRM SERVICES INDIA PVT. LTD., IN ITA NO.4068 OF DEL 2009 DATED 30.06.2011 WHEREIN IT WAS HELD THAT THE FINANCIAL RESULTS OF THESE TWO COMPANIES CANNOT BE ACCEPTED AS THEY WERE UNDER SERIOUS INDICTMENT. THU S IT IS SEEN THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF CRM SERVICES RELATES TO ASSESSMENT YEAR 2007 - 08 AND THE DECISION OF THE HYDERABAD BENCH ALSO IS FOR THE ASSESSMENT YEAR IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 21 OF 43 2007 - 08. THEREFORE, IF THE RESULTS OF THESE TWO COMPANIES CANNOT BE ACCEPT ED FOR THE SAME ASSESSMENT YEAR IN THE CASE OF ANOTHER COMPANY, WE ARE UNABLE TO SEE HOW THEY CAN BE TAKEN AS COMPARABLES IN THE CASE OF THE ASSESSEE HEREIN FOR THE VERY SAME ASSESSMENT YEAR. THEREFORE, WE DIRECT THE TPO TO EXCLUDE THESE TWO COMPANIES AL SO FROM THE LIST OF COMPARABLES. AS FAR THE ISSUE OF CONSIDERING THE FOREIGN EXCHANGE FLUCTUATION AS OPERATING REVENUE IS CONCERNED, WE HOLD THAT THIS AMOUNT ALSO IS TO BE CONSIDERED AS PART OF OPERATING REVENUE IN VIEW OF THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. THEREFORE, THE AO SHALL RE COMPUTE THE ALP BY TAKING INTO ACCOUNT THE FOREIGN EXCHANGE FLUCTUATION ALSO AS OPERATING REVENUE. AS FAR AS THE RESULT OF MEGA SOFT IS CONCERNED, WE HAVE ALREADY DIRECTED THAT THE ALP SHALL BE COMPUTED IN THE CASE OF THE SOFTWARE SEGMENT AFTER MAKING CORRECTION TO THE NET MARGIN OF MEGA SOFT LTD., ON THE BASIS OF THE ORDER OF THIS TRIBUNAL IN THE CASE OF TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL IN OTHER DECISIONS RELIED UPON BY THE ASSESSEE ACCORDINGLY, FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 8.5 MOLD - TEK TECHNOLOGIES LTD. T HE LEARNED AR OF THE ASSESSEE HAS REFERRED TO THE DIRECTOR S REPORT OF M/S MOLD TEX TECHNOLOGIES LTD., AND SUBMITTED THAT THIS CO. WAS HAVING AN EXTRA ORDINARY EVENT OF DEMERGER OF ITS IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 22 OF 43 SUBSIDIARY M/S MOLD TEK TECH.LTD., AND AMALGAMATED WITH TEKMEN TOOL (P)LTD., THE SCHEME OF AMALGAMATION WAS APPROVED BY THE HON BLE ANDHRA PRADESH HIGH COURT VIDE ORDER DATED 15/07/2008 THEREFORE, THERE WAS AMALGAMATION AND DEMERGER IN RESPECT OF THIS CO. DURING THE YEAR UNDER CONSIDERATION. HE HAS REFERRED TO THE BUSI NESS ACTIVITY OF THE SAID CO. AS INVOLVED IN THE STRUCTURAL ENGINEERING KPO. THUS, THE LEARNED AR HAS SUBMITTED THAT THIS CO. IS ENTIRELY IN THE DIFFERENT NATURE OF ACTIVITY AND FUNCTIONS WHICH IS NOT COMPARABLE WITH THE ASSESSEE. IN SUPPORT OF HIS CON TENTION HE HAS RELIED UPON THE DECISIONS OF THE SPECIAL BENCH OF MUMBAI (SUPRA). THE LEARNED AR HAS POINTED OUT THAT THIS CO. IS DECLARING ONLY ONE SEGMENT OPERATING REVENUE THEREFORE, THIS CANNOT BE COMPARED WITH THE ASSESSEE. 8.5.2 ON THE OTHER HAND , LEARNED DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS CO. IS IN THE FIELD OF ITES AND THEREFORE, FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. 8.5.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE MATERIAL O N RECORD. AT THE OUTSET, WE NOTE THAT FUNCTIONAL ANALYSIS OF THE CO. HAS BEEN EXAMINED BY THE SPECIAL BENCH IN CASE OF M/S MAERSK GLOBAL INDIA PVT.LTD(SUPRA) IN PARA - 81 & 83 AS UNDER: 81. INSOFAR AS THE CASE OF M/S MOLD TEK TECHNOLOGIES LTD IS CONCERNE D, IT IS OBSERVED FROM THE ANNUAL REPORT OF THE SAID COMPANY FOR THE FY: IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 23 OF 43 2007 - 08 PLACED AT PP.139 TO 151 OF THE PAPER BOOK THAT HE SAID COMPANY WAS PIONEER IN STRUCTURAL ENGINEERING KPO SERVICES AND ITS ENTIRE BUSINESS COMPRISED OF PROVIDING ONLY STRUCTURA L ENGINEERING SERVICES TO VARIOUS CLIENTS. FURTHER, INFORMATION OF M/S MOLD TEK TECHNOLOGIES LTD AVAILABLE ON THEIR WEBSITE IS FURNISHED IN THE FORM OF PRINTOUT AT PP.158 TO 165 OF THE PAPER BOOK AND A PERUSAL OF THE SAME SHOWN THAT IT IS A LEADING PROVIDE R OF ENGINEERING AND DESIGN SERVICES WITH SPECIALIZATION IN CIVIL, STRUCTURAL AND MECHANICAL ENGINEERING SERVICES. IT IS STATED TO HAVE A STRONG TEAM OF SKILLED RESOURCES WITH WORLD CLASS RESOURCES AND SKILL SETS. IT IS ALSO STATED TO HAVE CONSISTENTLY HELPED THE CLIENTS TO CUT DOWN DESIGN AND DEVELOPMENT COST OF CIVIL, STRUCTURAL, MECHANICAL AND PLANT DESIGN BY 30 - 40 PERCENT AND DELIVERED TECHNOLOGICALLY SUPERIOR OUTPUTS TO MATCH AND EXCEED EXPECTATIONS. IT IS CLAIMED TO HAVE IN - HOUSE SOFTWARE DEVELOPM ENT TEAM, QUALITY CONTROL TRAINING AND TROUBLE SHOOTING FACILITIES. M/S MOLD TEK IS ALSO RENDERING WEB DESIGN AND DEVELOPMENT SERVICES WITH EXPERIENCE IN TURNING THEM INTO AN EFFECTIVE GRAPHIC DESIGN REPRESENTATION AND CREATING DYNAMIC AND GRAPHIC RICH WE B APPLICATIONS FROM IT SPECS, DESIGN PRINTS ETC. KEEPING IN VIEW THIS INFORMATION AVAILABLE IN THE ANNUAL REPORT OF M/S MOLD TEK AS WELL AS ON ITS WEBSITE, WE ARE OF THE VIEW THAT THE SAID COMPANY IS MAINLY INVOLVED IN PROVIDING HIGH END SERVICES TO ITS CLIENTS INVOLVING HIGHER SPECIAL KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE TAKEN AS COMPARABLE TO THE ASSESSEE COMPANY WHICH IS MAINLY INVOLVED IN PROVIDING LOW END IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 24 OF 43 SERVICES. IT MAY BE PERTINENT TO NOTE HERE THAT THE FINANCIAL YE AR 2007 - 08 WAS A UNIQUE EAR FOR MOLD TEK TECH.LTD. AS THE SCHEME OF ARRANGEMENT INVOLVING AMALGAMATION BETWEEN TEKMEN TOOL (P)LTD AND MOLD TEK TECH.LTD. AND DEMERGER BETWEEN MOLD TEK TECHNOLOGIES LTD., SIMULTANEOUSLY, WAS SANCTIONED BY THE HON BLE ANDHRA P RADESH HIGH COURT BY 15 TH JULY, 2008 WITH THE APPOINTED DATE FOR AMALGAMATION AND DEMERGER BEING AS OCTOBER, 2007 AND APRIL 2007 RESPECTIVELY. IT IS ALSO PERTINENT TO NOTE THAT WHILE WORKING OUT THE OPERATING MARGIN OF THE SAID COMPANY PROVISION FOR DERI VATIVE LOSS OF RS.6.43 CRORES MADE BY MOLD TEK TECH.LTD. WAS EXCLUDED BY THE AO TREATING THE SAME AS NON - OPERATING EXPENSES WHEREAS IN THE CASE OF RUSABH DIAMONDS VS ASST.CIT(REPORTED AT (2013) 155 TTJ (MUM.) 386 (2013) 89 DTR (MUM.)(TRIB.) 57 ED) IT WAS HELD BY THE DIVISION BENCH OF THIS TRIBUNAL THAT THE GAIN OR LOSS ARISING FROM THE FORWARD CONTRACT ENTERED FOR THE PURPOSE OF FOREIGN CURRENCY EXPOSURE ON THE EXPORT AND IMPORT HAS TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE OPERATING PROFIT. 83. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW THAT IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPANY FOR ITS AE ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES(P)LTD AND MOLD - TEK TECHNOLOGIES LTD. IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTIONS OF THE IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 25 OF 43 ASSESSEE COMPANY WITH ITS AES. WE, THEREFORE, DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FR OM THE LIST OF 10 COMPARABLES FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTIONS OF THE DRP. 8.5.4 THE SPECIAL BENCH HAS EXAMINED THE FUNCTIONAL COMPARABILITY OF THIS CO. WITH THAT OF ITES LOW END SERVICE PROVIDING ASSESSEE AND FOUND THAT THIS CO. IS REN DERING WEB DESIGNING AND DEVELOPMENT OF SERVICES WITH EXPERTISE IN TURNING THEM IN TO EFFECTIVE GRAPHICS, DESIGN REPRESENTATIVE AND CREATING DYNAMICS AND GRAPHIC RICH WEB APPLICATION FROM IT SPECES, DESIGN, PRINTS ETC. FURTHER, THIS CO. WAS ALREADY FOUND TO BE INVOLVED IN PROVIDING STRUCTURAL ENGINEERING SERVICES COUPLED WITH EXTRAORDINARY EVENT OF AMALGAMATION AND DEMERGER. FOLLOWING THE DECISION OF THIS SPECIAL BENCH IN CASE OF M/S MAERSK GLOBAL INDIA PVT. LTD. (SUPRA),MUMBAI BENCHES THE TRIBUNAL IN THE CASE OF M/S LIONBRIDGE TECH. PVT. LTD(SUPRA) ALSO TOOK A SIMILAR VIEW IN PARA - 7 AS UNDER: 7. BY APPLYING THE ARITHMETIC MEAN OF 30.10% AN ADJUSTMENT OF RS.10,39,54,664/ - WAS SUSTAINED BY DRP. OUT OF THE COMPARABLES TAKEN BY THE DRP, LEARNED AR HAS CON TENDED AGAINST THREE COMPANIES NAMELY; MOLD TEK TECH.LTD. EXCLERX SERVICE :LTD AND ACROPETAL TECH.LTD WHICH WERE ALLEGED TO BE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY BEING A LOW END BACK OFFICE SUPPORT SERVICE PROVIDER. WE FOUND THAT MOLD TEK TECH.LTD PROVIDES KPO SERVICES IN THE FIELD OF IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 26 OF 43 ENGINEERING. WE ALSO FOUND THAT MOLD TEK HAS DEMERGED ITS SUBSIDIARY MOLD TEK PLASTICS LTD W.E.F. APRIL, 2007 WHICH IS AN EXTRA - ORDINARY EVENT. FURTHERMORE, SINCE THE MOLD TEK IS INTO PROVIDING KPO ENGINEE RING SERVICES, HENCE, CANNOT BE FUNCTIONALLY COMPARED WITH THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE PROVISION OF BACK OFFICE OPERATIONS. FOR THIS PURPOSE, RELIANCE MAY BE PLACED ON THE DECISION OF SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL CENTRES ( IND.) PVT.LTD, ITA N O .7466/MUM/2012. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN THE ORDER OF DRP FOR NOT EXCLUDING MOLD TEK AS COMPARABLE WHICH IS A KNOWLEDGE PROCESSING COMPANY. THUS, THE DRP WAS NOT JUSTIFIED IN THE COMPARING THE SAME WITH THE ASSESSEE WHICH IS FUNCTIONALLY DIFFERENT INSOFAR AS ASSESSEE IS ENGAGED IN PROVIDING LOW END BACK OFFICE SUPPORT SERVICES . 8.5.4 IN VIEW OF THE ABOVE FACTS AND NATURE OF THE FUNCTIONS PERFORMED BY THE MOLD TEK WHICH HAVE BEEN EXAMINED BY THE SPECIAL BENCH AND FOUND IS NOT COMPARED WITH THE LOW END ITES SERVICE PROVIDER CO. WE HOLD THAT THIS CO. IS FUNCTIONALLY NOT COMPARABLE WITH THAT OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE MOLD TEK FROM THE LIST OF COMPARABLES. 8.6 TRICOM CORPORATION LTD. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THE FINANCIAL STATEMENTS OF THIS COMPANY CANNOT BE RELIED UPON FOR IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 27 OF 43 THE PURPOSE OF DETERMINING ALP BECAUSE OF THE DIRECTORS OF THIS COMPANY INVOLVED IN THE FRAUD. HE FURTHER SUBMITTED THAT THERE WAS MERGER DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS: I. FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. (ITA NO.1086/ BANG/2011) II. STREAM INTERNATIONAL PVT. LTD.(ITA NO.8290/ MUM/2011) ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 8.6.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. (SUPRA) WHICH HAS ALREADY BEEN REPRODUCED IN THE FOREGOING PARAGRAPHS. THIS COMPANY HAS MERGED WITH MOLD - TEK TECHNOLOGIES LTD. DURING THE YEAR UNDER CONSIDERATION. IN VIEW OF THE FINDINGS IN RESPECT OF MOLD - TEK TECHNOLOGIES LTD., WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE COMPANY. 8.7 VISHAL INFORMATION TECHNOLOGIES L TD.(CORAL HUB LTD.) THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY DOES NOT QUALIFY THE EMPLOYEES FILTER OF 25% ADOPTED BY THE TPO. HE HAS POINTED OUT THAT THIS COMPANY HAS OUTSOURCED ITS ACTIVITIES AND THEREFORE, BEING A DIFFERE NT BUSINESS MODEL TO A IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 28 OF 43 ROUTINE ITES PROVIDER, CANNOT BE CONSIDERED AS A GOOD COMPARABLE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS: I. RAMPGREEN SOLUTIONS PVT. LTD.(TS - 387 - HC - 2015 - TP) II. FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD . (ITA NO.1086/BANG/2011) III. STREAM INTERNATIONAL PVT. LTD.(ITA NO.8290/ MUM/2011) IV. GOLDMAN SACHS SERVICES PVT. LTD. (ITA NO.1423/BANG/2010) V. C3I SUPPORT SERVICES PVT. LTD. (ITA NO.2183/HYD/2011) ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE H AS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 8.7.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE COMPARABILITY OF THIS COMPANY WITH ITES PROVIDING SERVICE PROVIDER HAS BEEN EXAMINED BY THE TRIBU NAL IN VARIOUS CASES AS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE. IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. (SUPRA) IT HAS BEEN HELD IN PARA.35 AS UNDER: 35. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THEIR RIVAL CONTE NTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE HAD ARISEN IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07. THIS TRIBUNAL HAS HELD THAT EMPLOYEE COST FILTER IS TO BE THE SAME EVEN FOR ITES SEGMENT ALSO. THE LEARNED DR'S ARGUMENT THAT THE EMPLOYEE COST FILTER IS APPLICABLE ONLY TO SOFTWARE DEVELOPMENT SEGMENT AND NOT TO ITES IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 29 OF 43 SEGMENT IS NOT ACCEPTABLE. THOUGH IT IS WITHOUT ANY DISPUTE THAT THE SOFTWARE DEVELOPMENT WOULD REQUIRE SKILLED EMPLOYEES AND, THEREFORE, THE EMPLOYEE COST WOULD DE FINITELY BE MORETHA425% OF THE TOTAL EXPENSES, IT CANNOT HE SAID THAT THE SAID FILTER IS NOT APPLICABLE TO ITES SEGMENT, WHERE COMPARABLY LESS EMPLOYEES ARE EMPLOYED. IN THE ITES SEGMENT, THE ENTIRE WORK IS TO BE DONE BY THE EMPLOYEES AND, THEREFORE, EVEN THOUGH THEY MAY BE LESS SKILLED COMPARED TO SOFTWARE DEVELOPMENT SEGMENT, THE NUMBER OF EMPLOYEES WOULD DEFINITELY BE MORE AND THUS THE EMPLOYEE COST WOULD BE HIGH AND THUS APPLICATION OF EMPLOYEE COST FILTER TO THE IT1ES SECTOR IS ALSO JUSTIFIED. IN VIE W OF THE SAME, WE DIRECT THE TPO TO APPLY THE EMPLOYEE COST FILTER TO EXCLUDE COMPANIES WITH EMPLOYEE COST OF LESS THAN 25% FROM THE LIST OF COMPARABLES FOR THE COMPUTATION OF ALP. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE OTHER DECISIONS. WE FURTHER NOTE THAT THE HON BLE HIGH COURT IN THE CASE OF RAM P GREEN SOLUTIONS PVT. LTD. (SUPRA) HAS ALSO DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE. 8.8 WIPRO LTD. (SEG. ) THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY IS A N INDUSTRY LEADER AND ALSO OWNS TANGIBLES. HE HAS FURTHER SUBMITTED THAT THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND SERVICES. HOWEVER, THE SEGMENTAL INFORMATION IS NOT AVAILABLE . HE HAS POINTED OUT THAT THERE IS A AMALGAMATION IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 30 OF 43 DURING THE YEAR . HE HAS RELIED UPON THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA). ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORI TIES BELOW AND SUBMITTED THAT THIS COMPANY WAS FOUND TO BE FUNCTIONALLY SIMILAR TO THE ITES SERVICE PROVIDED BY THE ASSESSEE. 8.8.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL I SSUE OF COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN THE CASE OF GXS INDIA TECHNOLOGY CENTRE PVT.LTD IN IT(TP)A NO.1444(BANG) 2012 DATED 31/07/2015 WHE R EIN IT HAS BEEN HELD IN PARAS.17.2 AND 17.3 AS UNDER: 17.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. WE NOTE THAT IN CASE OF 3DPLM SOFTWARE SOLUTIONS LTD, (SUPRA), THIS TRIBUNAL HAS CONSIDERED THE FUNCTIONAL COMPARABILITY OF THIS COMPANY IN PARA - 12.4.1 AND 12.4.2 AS UNDER; 12.4.1 WE HAVE HEARD BOT H PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 31 OF 43 PR ODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMATION ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODUCT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTW ARE DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALYSIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANC IALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISON. 12.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLECTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN A DDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE C ONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 32 OF 43 IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 17.3 AS IT WAS FOUND THAT THIS COMPANY OWNS INTELL ECTUAL PROPERTY RIGHTS IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. THEREFORE, THE SAID COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO LOW RISK CAPTIVE SERVICES PROVIDER. FOLLOWING THE FINDING OF THE CO - ORDINA TE BENCH OF THIS TRIBUNAL, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ACCORDINGLY, WE DIRECT THE AO/TPO TO RE - COMPUTE THE ALP AFTER EXCLUSION OF THE ABOVE COMPANIES FROM THE LIST OF COMPARABLES. THE ASSESSEE CLAIMS THAT M EAN MARGIN OF THE COMPARABLE AFTER EXCLUSION OF THE ABOVE COMES TO AROUND 17.85% WHICH IS WITHIN TOLERANCE RANGE OF +/ - 5%. WE DIRECT THE TPO TO CONSIDER THE CLAIM OF THE ASSESSEE OF GRANTING THE BENEFIT OF TOLERANCE RANGE +/ - 5% AS RAISED IN GROUND NO.3 OF THE CONCISE GROUNDS. 10. GROUND NOS.4 TO 6 IS REGARDING SETTING OFF OF DOMESTIC LOSS AGAINST INCOME FROM EXPORT BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 10A. 10.1 THE LEARNED AR OF THE ASSESSEE HAS RELIED UPON THE DECISION OF THE HON'BLE JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. & OTHERS ( 341 ITR 385 ) AS WELL AS THE IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 33 OF 43 DECISION IN THE CASE OF CIT VS. M/S.AURINGENE DISCOVERY TECHNOLOGIES LTD. IN ITA NO.549/2013 DATED 05/09/2014 AND SUBMITTED THAT THE HON BLE HIGH COURT H AS REITERATED THE VIEW TAKEN IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA). HE HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL DATED 30/4/2014 IN THE CASE OF CIT VS. M/S.BIOCON LTD. IN ITA NOS.248 , 368 TO 371 & 1206/2010. 10.2 O N THE OTHER HAND, LEARNE D DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HIMATSINGHIKA SEIDE LTD. (156 TAXMAN 151) AND SUBMITTED THAT THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT HAS BEEN CONFIRMED BY THE HON BLE SUPREME COURT AND THE SLP FILED BY THE ASSESSEE HAS BEEN DISMISSED. 10.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF HIMATSINGHIKA SEIDE LTD. (SUPRA) HAD DECIDED THIS ISSUE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. HOWEVER, IT IS PERTINENT TO NOTE THAT THE SAID DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT WAS IN RESPECT OF THE DISPUTE FOR THE ASSESSMEN T YEAR 1994 - 95 AND THERE IS AN AMENDMENT IN THE PROVISIONS OF SEC.10A AND 10B OF THE ACT VIDE FINANCE ACT, 2000 W.E.F. 1/4/2001. BY VIRTUE OF THE IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 34 OF 43 AMENDMENT AND SUBSTITUTION OF PROVISIONS OF SEC.10A AND 10B, THE INCENTIVE U/S 10A AND 10B WAS NO LONGER IN TH E NATURE OF EXEMPTION BUT IT IS IN THE NATURE OF DEDUCTION. BY CONSIDERING THE AMENDMENT/SUBSTITUTION OF SEC. 10A AND 10B VIDE FINANCE ACT, 2000 W.E.F. 1/4/2001, HON'BLE JURISDICTIONAL HIGH COURT VIDE JUDGMENT IN THE CASE OF YOKOGAWA INDIA LTD.(SUPRA) HAS HELD IN PARAS.16 TO 2 3 AS UNDER: 16. THE SUBSTITUTED S. 10A CONTINUES TO REMAIN IN CHAPTER III. IT IS TITLED AS 'INCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME'. IT MAY BE NOTED THAT WHEN S. 10A WAS RECAST BY THE FINANCE ACT, 2001 (SIC - 2000), THE PAR LIAMENT WAS AWARE OF THE CHARACTER OF RELIEF GIVEN IN CHAPTER III. CHAPTER III DEALS WITH INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME. IF THE PARLIAMENT INTENDED THAT THE RELIEF UNDER S. 10A SHOULD BE BY WAY OF DEDUCTION IN THE NORMAL COURSE OF COMPUTAT ION OF TOTAL INCOME, IT COULD HAVE PLACED THE SAME IN CHAPTER VI - A WHICH HOUSES THE SECTIONS LIKE 80HHC, 80 - IA, ETC. THE PARLIAMENT WAS AWARE OF THE VARIOUS RESTRICTING AND LIMITING PROVISIONS LIKE S. 80A AND S. 80AB WHICH WERE IN CHAPTER VI - A WHICH DO NOT APPEAR IN CHAPTER III. THE FACT THAT EVEN AFTER ITS RECAST, THE RELIEF HAS BEEN RETAINED IN CHAPTER III INDICATES THE INTENTION OF PARLIAMENT THAT IT IS TO BE REGARDED AS AN EXEMPTION AND NOT A DEDUCTION. THE ACT OF THE PARLIAMENT IN CONSCIOUSLY RETAINING THIS SECTION IN CHAPTER III INDICATES ITS INTENTION THAT THE NATURE OF RELIEF CONTINUES TO BE AN EXEMPTION. CHAPTER VII DEALS WITH THE INCOMES FORMING PART OF THE TOTAL INCOME ON WHICH NO INCOME - TAX IS PAYABLE. THESE ARE THE INCOMES WHICH ARE EXEMPTED FRO M CHARGE, BUT ARE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE PARLIAMENT DESPITE BEING CONVERSANT WITH THE IMPLICATIONS OF THIS CHAPTER, HAS CONSCIOUSLY CHOSEN TO RETAIN S. 10A IN CHAPTER III. 17. IF S. 10A IS TO BE GIVEN EFFECT TO AS A DEDUCTION FRO M THE TOTAL INCOME AS DEFINED IN S. 2(45), IT WOULD MEAN THAT S. 10A IS TO BE CONSIDERED AFTER CHAPTER VI - A DEDUCTIONS HAVE BEEN EXHAUSTED. THE DEDUCTIONS UNDER CHAPTER VI - A ARE TO BE GIVEN FROM OUT OF THE GROSS TOTAL INCOME. THE TERM 'GROSS TOTAL INCOME' IS DEFINED IN S. IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 35 OF 43 80B(5) TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT, BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER. AS PER THE DEFINITION OF GROSS TOTAL INCOME, THE OTHER PROVISIONS OF THE ACT WILL HAVE TO BE FIRST GIVE N EFFECT TO. THERE IS NO REASON WHY REFERENCE TO THE PROVISIONS OF THE ACT SHOULD NOT INCLUDE S. 10A. IN OTHER WORDS, THE GROSS TOTAL INCOME WOULD BE ARRIVED AT AFTER CONSIDERING S. 10A DEDUCTION ALSO. THEREFORE, IT WOULD BE INAPPROPRIATE TO CONCLUDE THAT S. 10A DEDUCTION IS TO BE GIVEN EFFECT TO AFTER CHAPTER VI - A DEDUCTIONS ARE EXHAUSTED. 18. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI - A THAT THE TOTAL INCOME OF AN ASSESSEE IS ARRIVED AT. CHAPTER VI - A DEDUCTIONS ARE THE LAST STAGE OF GIVING EFFECT TO ALL T YPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT THE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED AT. TOTAL INCOME IS THUS, A FIGURE ARRIVED AT AFTER GIVING EFFECT TO ALL DEDUCTIONS UNDER THE ACT. THERE CANNOT BE ANY FURTHER DEDUCTION FROM THE TOTAL I NCOME AS THE TOTAL INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. 19. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOME OF 10A UNIT HAS TO BE DE DUCTED AT SOURCE ITSELF AND NOT AFTER COMPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF S. 10A IN THIS CONTEXT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN S. 2(45). HENCE, THE INCOME ELIGIBLE FO R EXEMPTION UNDER S. 10A WOULD NOT ENTER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. 2ND SUBSTANTIAL QUESTION OF LAW 20. PRIOR TO THE INTRODUCTION OF SUB - S. (6) OF S. 10A AND S. 10B BY THE FINANCE ACT, 2000, WHICH CAME INTO EFFECT FROM 1ST APRIL, 2001, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEARS, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR, SUB - S. (2) OF S. 32, CL. (II) OF SUB - S. (III), S. 32A CL. (II) OF SUB - S. (3) OF S. 32A, CL. (II) OF SUB - S. (2) OF S. 33 AND SUB - S. (4) OF S. 35 OF THE ACT OR THE SECOND PROVISO TO CL. (IX) OF SUB - S. (1) OF S. 36 SHALL NOT BE APPLICABLE IN RELATION TO ANY SUCH ALLOWANCE OR DEDUCTION. SIMILARLY NO LOSS AS REFERRED TO IN SUB - S. (1) OR IN S. 72 OR SUB - S. (1) OR SUB - IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 36 OF 43 S. (3) OF S. 74 INSOFAR AS SUCH LOSS RELATES TO THE BUSINESS OF THE UNDERTAKING WAS PERMITTED TO BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES T O ANY OF THE RELEVANT ASSESSMENT YEARS. 21. IT IS IN THIS BACKGROUND THE FINANCE ACT, 2003 WAS INTRODUCED BY INSERTING THE WORDS 'THE YEAR ENDING UPTO THE FIRST DAY OF APRIL, 2001', FOR THAT IN CLS. (1) AND (2) OF SUB - S. (6) RESTRICTING THE DISALLOWANCE ON LY UPTO THE FIRST DAY OF APRIL, 2001 AND GRANTING THE BENEFIT, OF THOSE PROVISIONS EVEN IN RESPECT OF UNITS TO WHICH SS. 10A AND 10B ARE APPLICABLE. THE FINANCE ACT, 2003, AMENDED THIS SUB - SECTION WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2001 BY LIFTING T HE EMBARGO IN THE AFORESAID CLAUSES IN RESPECT OF DEPRECIATION AND BUSINESS LOSS RELATING TO THE ASST. YR. 2001 - 02 ONWARDS. THE AMENDMENT INDICATES THE LEGISLATIVE INTENTION OF PROVIDING THE BENEFIT OF CARRY FORWARD OF DEPRECIATION AND BUSINESS LOSS RELATI NG TO ANY YEAR OF THE TAX HOLIDAY PERIOD TO BE SET OFF AGAINST INCOME OF ANY YEAR POST TAX HOLIDAY. THIS IS SUPPORTED BY CIRCULAR NO. 7 OF 2003 [(2003) 184 CTR (ST) 33] WHEREIN THE BOARD HAS STATED THAT THE PURPOSE OF AMENDMENT IS TO ENTITLE AN ASSESSEE TO THE BENEFIT OF CARRY FORWARD OF DEPRECIATION AND LOSS SUFFERED DURING THE TAX HOLIDAY PERIOD. THE CIRCULAR DT. 5TH SEPT., 2003 READS AS UNDER : '20. PROVIDING FOR CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION TO UNITS IN SPECIAL ECONOMIC ZO NES AND 100 PER CENT EXPORT ORIENTED UNITS. 20.1 UNDER THE EXISTING PROVISIONS OF SS. 10A AND 10B, THE UNDERTAKINGS OPERATING IN A SPECIAL ECONOMIC ZONE (UNDER S. 10A) AND 100 PER CENT EXPORT ORIENTED UNITS (UNDER S. 10B) ARE NOT PERMITTED TO CARRY FORWARD THEIR BUSINESS LOSSES AND UNABSORBED DEPRECIATION. 20.2 WITH A VIEW TO RATIONALIZE THE EXISTING TAX INCENTIVES IN RESPECT OF SUCH UNITS SUB - S. (6) IN SS. 10A AND 10B HAS BEEN AMENDED TO DO AWAY WITH THE RESTRICTIONS ON THE CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION. THE AMENDMENTS HAVE BEEN BROUGHT INTO EFFECT RETROSPECTIVELY FROM 1ST APRIL, 2001 AND HAVE BEEN MADE APPLICABLE TO BUSINESS LOSSES OR UNABSORBED DEPRECIATION ARISING IN THE ASST. YR. 2001 - 02 AND SUBSEQUENT YEARS.' IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 37 OF 43 22. IT IS IN TERESTING TO NOTE THAT SUCH RELAXATION HAS NOT BEEN MADE IN S. 10C WHICH PROVIDES FOR EXEMPTION IN RESPECT OF PROFITS OF CERTAIN UNDERTAKINGS IN NORTH EASTERN REGION. THIS MAKES CLEAR THE LEGISLATIVE INTENTION OF PROVIDING RELAXATION WHEREVER IT DEEMS FIT AND IN THE PRESENT CASE, SUCH RELAXATION HAS BEEN MADE IN S. 10A BUT NOT IN S. 10C. 23. IT IS TO BE NOTED THAT THE AFORESAID AMENDMENT READ WITH THE BOARD CIRCULAR DOES NOT MILITATE AGAINST THE PROPOSITION THAT THE BENEFIT OF RELIEF UNDER THIS SECTION IS I N THE NATURE OF EXEMPTION WITH REFERENCE TO THE COMMERCIAL PROFITS. HOWEVER, IN ORDER TO GIVE EFFECT TO THE LEGISLATIVE INTENTION OF ALLOWING THE CARRY FORWARD OF DEPRECIATION AND LOSS SUFFERED IN RESPECT OF ANY YEAR DURING THE TAX HOLIDAY FOR BEING SET OF F AGAINST INCOME POST TAX HOLIDAY, IT IS NECESSARY THAT THE NOTIONAL COMPUTATION OF BUSINESS INCOME AND THE DEPRECIATION AS PER THE PROVISIONS OF THE ACT SHOULD BE MADE FOR EACH YEAR OF THE TAX HOLIDAY PERIOD. WHILE SO COMPUTING, ATTENTION WILL HAVE TO BE GIVEN TO PROVISIONS OF SS. 70, 71, 72 AND S. 32(2). THE AMOUNT OF DEPRECIATION AND BUSINESS LOSS REMAINING UNABSORBED AT THE END OF THE TAX HOLIDAY PERIOD SHOULD BE DETERMINED SO THAT THE SAME MAY BE SET OFF AGAINST THE INCOME POST TAX HOLIDAY PERIOD. 10.4 WE FURTHER NOTE THAT THIS VIEW HAS BEEN REITERATED BY THE HON'B LE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. AURIGENE DISCOVERY TECHNOLOG IES LTD., IN ITA NO.549/13. A SIMILAR VIEW WAS CONSIDERED BY THE C O - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE M/S.BIOCON LTD. (SUPRA) AND HELD IN PARA.23 TO 26 AS UNDER: 23. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.21 IS IDENTICAL TO THE GROUND RAISED BY THE ASSESSEE IN BIOCON (SUPRA). TH E FACTS OF THE CASE BEFORE THE TRIBUNAL IN THE CASE OF BIOCON (SUPRA) WERE THAT THE ASSESSEE DURING THE PREVIOUS YEAR HAD FOUR UNITS WHICH WERE ENTITLED TO CLAIM DEDUCTION U/S. 10B OF THE ACT VIZ., CMZ UNIT, SAP UNIT, RHI UNIT AND IFP UNIT. THE ASSESSEE HA D CLAIMED DEDUCTION U/S. 10B OF THE ACT IN RESPECT OF THE AFORESAID UNITS TOTALING RS.157,22,33,066 WHICH IS THE SUM TOTAL OF DEDUCTION U/S. 10B FOR THE FOUR UNITS AS FOLLOWS: - (1) CMZ UNIT : 6,87,70,229 (2) SAP UNIT : 76,60,29,880 IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 38 OF 43 (3) RHI UNI T : 52,42,56,278 (4) IFP UNIT : 21,31,76,679 TOTAL 157,22,33,066 THE ASSESSEE HAD NON - 10B UNITS AS WELL. IN THOSE NON - 10B UNITS, THERE WAS A LOSS OF RS.105,92,19,172. IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE ASSESSEE SOUG HT TO CARRY FORWARD THE LOSS OF NON - 10B UNITS FOR SET OFF AGAINST THE PROFITS OF NON - 10B UNITS IN THE SUBSEQUENT ASSESSMENT YEARS. THE AO FIRSTLY NOTICED THAT THERE WAS INCOME FROM OTHER SOURCES TO THE EXTENT OF RS.4,71,15,896 AND SUCH HAD TO BE SET OFF AG AINST THE LOSS OF THE NON - 10B UNITS. ACCORDINGLY, THE AO HELD THAT THE LOSS OF THE NON - 10B UNITS THAT HAD TO BE CONSIDERED FOR CARRY FORWARD WOULD BE RS.101,21,03,280. THEREAFTER, THE AO WAS OF THE VIEW THAT INCOME OF THE 10B UNITS HAD TO BE SET OFF AGAINS T THE LOSS OF THE NON - 10B UNITS AND IF IT IS SO SET OFF, THERE WILL BE NO LOSS THAT NEEDS TO BE CARRIED FORWARD. IN COMING TO THE AFORESAID CONCLUSION, THE AO EXPRESSED THE OPINION THAT PROVISIONS OF SECTION 10B ARE DEDUCTION PROVISIONS AND THEREFORE EFFEC T WILL HAVE TO BE GIVEN TO THE PROVISIONS OF SECTION 72 OF THE ACT, EVEN IN RESPECT OF PROFITS OF THE 10B UNIT. ACCORDINGLY, THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF LOSS OF NON - 10B UNIT WAS NOT ALLOWED BY THE AO. ON APPEAL BY THE ASSESSEE, IT WAS C ONTENDED THAT THE PROVISIONS OF SECTION 10A AND SECTION 10B ARE EXEMPTION PROVISIONS AND THEREFORE THE PROFIT OF 10A AND 10B UNITS WILL NOT ENTER THE COMPUTATION OF TOTAL INCOME AT ALL AND THEREFORE THE PROFITS OF THESE UNITS NEED NOT BE SET OFF AGAINST TH E LOSS OF NON - 10B UNIT BY INVOKING THE PROVISIONS OF SECTION 72 OF THE ACT. THE CIT(APPEALS) DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND IN DOING SO, HE PLACED RELIANCE ON THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. HIM ATSINGIKE SEIDE LTD., 286 ITR 255 (KAR). IN THE AFORESAID DECISION, THE HON BLE HIGH COURT HAS TAKEN THE VIEW THAT DEDUCTION U/S. 10B HAS TO BE ALLOWED AFTER SET OFF OF UNABSORBED DEPRECIATION AND UNABSORBED INVESTMENT ALLOWANCE. THE HON BLE COURT TOOK THE VIEW THAT THE AFORESAID PROVISION WAS ONLY AN EXEMPTION PROVISION. THE CIT(APPEALS) NOTICED THAT THE AFORESAID DECISION WAS FOLLOWED BY THE ITAT BANGALORE BENCH IN THE CASE OF INTELNET TECHNOLOGIES INDIA PVT. LTD. V. ITO, ITA NO.1021/BANG/2009 DATED 12.3. 2010. SIMILAR VIEW EXPRESSED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GLOBAL VANTAGE PVT. LTD. V. DCIT, 2010 TIOL 24 ITAT (DEL) WAS ALSO REFERRED TO BY THE CIT(A). A CONTRARY VIEW WAS EXPRESSED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF KPIT IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 39 OF 43 CUMMINS INFO SYSTEMS (BANGALORE) PVT. LTD. V. ACIT, 120 TTJ 956. THE CIT(A) FOUND THAT IN THE CASE OF GLOBAL VANTAGE PVT. LTD. (SUPRA) DECIDED BY THE DELHI TRIBUNAL THIS DECISION HAS BEEN HELD TO BE NOT IN TUNE WITH THE DECISION OF THE HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF HIMATSINGIKE SEIDE LTD. (SUPRA). THE CIT(A) ALSO REFERRED TO THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF SWORD GLOBAL INDIA PVT. LTD. V. ITO, 306 ITR 286 (AT), WHEREIN THE PROVISIONS OF SECTION 10A AND 10B HAVE BEEN HELD TO BE DEDUCTION PROVISIONS AND NOT EXEMPTION PROVISIONS. FOR ALL THE ABOVE REASONS, THE CIT(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. AGAINST THE ORDER OF THE CIT(A), THE ASSESSEE WAS IN APPEAL BEFORE THE TRIBUNAL. 25. T HIS TRIBUNAL DEALT WITH THE ISSUE IN THE FOLLOWING WORDS : 63. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE ISSUE AS TO WHETHER THE PROVISIONS OF SEC.10B OF THE ACT ARE DEDUCTION PROVISIONS OR EXEMPTION PROVISIONS WILL ASSUME GREAT IMPORTANCE. THE REASON IS THAT IF THE PROVISIONS ARE CONSIDERED AS EXEMPTION PROVISIONS THEN THEY WILL NOT ENTER THE COMPUTATION OF TOTAL INCOME AND THEREFORE THE LOSS OF THE ELIGIBLE UNIT CANNOT BE SET OFF AGAINST THE PROFITS OF THE NON - ELIGIBLE UNIT. TH IS ISSUE HAS ALREADY BEEN SETTLED BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA). THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA (SUPRA) HAD TO DEAL WITH TWO SUBSTANTIAL QUESTION OF LAW. THE FIRST SUBSTANTIAL QUEST ION OF LAW WAS ON THE RIGHT OF SET OFF OF LOSS OF NON - ELIGIBLE UNIT AGAINST THE PROFIT OF THE ELIGIBLE UNIT ON WHICH DEDUCTION U/S.10B WAS TO BE ALLOWED. THE HON BLE COURT IN PARA 10 TO 20 OF ITS JUDGMENT DEALT WITH THE ISSUE. THE HON BLE COURT NOTICED THA T SEC.10 - A(1) OF THE ACT (WHICH IS IN PARI MATERIA WITH SEC.10 - B OF THE ACT) READ AS FOLLOWS: 10B. SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED UNDERTAKING IN FREE TRADE ZONE ETC., - (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY UNDERTAKING FROM THE EXPORT OF IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 40 OF 43 ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS - YEAR IN WHICH THE UNDER - TAKING BEGINS T O MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSE E : (EMPHASIS SUPPLIED) 64. THE EXPRESSION DEDUCTION AND SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE USED IN THE AFORESAID PROVISIONS WAS CONSIDERED BY THE HON BLE HIGH COURT AND IT HELD IN PARA 13 TO 15 OF ITS JUDGMENT THAT THE EXPRESSION SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE DOES NOT MEAN TOTAL INCOME AS DEFINED U/S.2(45) OF THE ACT BUT THAT EXPRESSION MEANS PROFITS AND GAINS OF THE STP UNDERTAKING AS UNDERSTOOD IN ITS COMMERCIAL SENSE OR THE TOTAL INCOME OF THE STP UNIT. THUS THE VIEW EXPRESSED IS THAT INCOME OF THE STP UNDERTAKING GETS QUARANTINED AND WILL NOT BE ALLOWED TO BE SET OFF AGAINST LOSS OF EITHER ANOTHER STP UNDERTAKING OR A NON STP UNDERTAKING. THE HON BLE COURT THEREAFTER HELD THAT THOUGH THE EXPRESSION USED IN SEC.10A WAS DEDUCTION BUT IN EFFECT IT WAS ONLY AN EXEMPTION SECTION. THESE CONCLUSIONS CLEARLY EMANATE FRO M PARA 17 OF THE HON BLE COURT S JUDGMENT. 65. THE SITUATION WITH WHICH WE ARE CONCERNED IN THE PRESENT CASE IS A SITUATION WHERE THERE IS POSITIVE INCOME OF THE ELIGIBLE UNIT THEN THE SAME SHOULD BE ALLOWED DEDUCTION U/S.10B OF THE ACT WITHOUT SETTING OF THE LOSS OF NON - ELIGIBLE UNIT. THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA (SUPRA) WAS CONCERNED WITH SIMILAR SITUATION AS SET OUT ABOVE. IN VIEW OF THE AFORESAID DECISION OF THE HON BLE KARNATAKA HIGH COURT, WE ARE OF THE VIEW THAT THE CLA IM AS MADE BY THE ASSESSEE FOR CARRY FORWARD OF LOSS OF THE NON - ELIGIBLE UNIT HAD TO BE ALLOWED WITHOUT SET OFF OF PROFITS OF THE 10A/10B UNIT. WE HOLD ACCORDINGLY AND IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 41 OF 43 ALLOW THE RELEVANT GROUNDS OF APPEAL OF THE ASSESSEE. 66. WE MAY ALSO OBSERVE THAT TH E HON BLE KARNATAKA HIGH COURT S DECISION IN THE CASE OF HIMATASINGIKE SEIDE (SUPRA) HAS HELD THAT UNABSORBED DEPRECIATION (AND BUSINESS LOSS) OF SAME (S. 10A/10B) UNIT BROUGHT FORWARD FROM EARLIER YEARS HAVE TO BE SET OFF AGAINST THE PROFITS BEFORE COMPUT ING EXEMPT PROFITS. THE ASSESSEE IN THAT CASE SET UP A 100% EOU IN AY 1988 - 89. FOR WANT OF PROFITS IT DID NOT CLAIM BENEFITS U/S 10B IN AYS 1988 - 89 TO 1990 - 91. FROM AY 1992 - 93 IT CLAIMED THE SAID BENEFITS FOR A CONNECTIVE PERIOD OF 5 YEARS. IN AY 1994 - 95, THE ASSESSEE COMPUTED THE PROFITS OF THE EOU WITHOUT ADJUSTING THE BROUGHT FORWARD UNABSORBED DEPRECIATION OF AY 1988 - 89. IT CLAIMED THAT AS S. 10B CONFERRED EXEMPTION FOR THE PROFITS OF THE EOU, THE SAID BROUGHT FORWARD DEPRECIATION COULD NOT BE SET - OFF FROM THE PROFITS OF THE EOU BUT WAS AVAILABLE TO BE SET - OFF AGAINST INCOME FROM OTHER SOURCES. IT WAS ALSO CLAIMED THAT THE PROFITS HAD TO BE COMPUTED ON A COMMERCIAL BASIS. THE AO ACCEPTED THE CLAIM THOUGH THE CIT REVISED HIS ORDER U/S 263 AND DIRECTED THAT THE EXEMPTION BE COMPUTED AFTER SET - OFF. ON APPEAL BY THE ASSESSEE, THE TRIBUNAL REVERSED THE ORDER OF THE CIT. ON APPEAL BY THE DEPARTMENT, THE HIGH COURT IN CIT VS. HIMATASINGIKE SEIDE LTD. 286 ITR 255 (KAR) REVERSED THE ORDER OF THE TRIBUNAL AND H ELD THAT THE BROUGHT FORWARD DEPRECIATION HAD TO BE ADJUSTED AGAINST THE PROFITS OF THE EOU BEFORE COMPUTING THE EXEMPTION ALLOWABLE U/S 10B. IN CIVIL APPEAL NO.1501 OF 2008 DATED 19.9.2013 AGAINST THE AFORESAID DECISION OF THE HON BLE KARNATAKA HIGH COURT , THE HON BLE SUPREME COURT OBSERVED AS FOLLOWS WHILE DISMISSING THE APPEAL: - HAVING PERUSED THE RECORDS AND IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF OPINION THAT THE CIVIL APPEAL BEING DEVOID OF ANY MERIT DESERVES TO BE DISMISSED A ND IS DISMISSED ACCORDINGLY. IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 42 OF 43 67. THUS THE RATIO HAS TO BE CONFINED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE AFORESAID OBSERVATIONS HAVE TO BE CONFINED TO THE FACTS OF THAT CASE AND AS APPLICABLE TO A CASE WHERE BROUGHT FORWARD LOSSES AND DEPRECIAT ION OF THE VERY SAME STP UNDERTAKING ARE NOT ADJUSTED WHILE ARRIVING AT THE PROFITS OF THE 10B UNIT FOR ALLOWING DEDUCTION U/S.10A/10B OF THE ACT AND NOT IN RESPECT OF BROUGHT FORWARD LOSSES AND DEPRECIATION OF OTHER UNDERTAKINGS/NON - 10A/10B UNITS. S. 10A /10B(6) AS AMENDED BY THE FA 2003 W.R.E.F. 1.4.2001 PROVIDES THAT DEPRECIATION AND BUSINESS LOSS OF THE ELIGIBLE UNIT RELATING TO THE AY 2001 - 02 & ONWARDS IS ELIGIBLE FOR SET - OFF & CARRY FORWARD FOR SET - OFF AGAINST INCOME POST TAX HOLIDAY WHICH MEANS THAT THEY NEED NOT BE SO SET OFF AS MANDATED IN THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE LTD. (SUPRA). AS WE HAVE ALREADY SEEN, IN YOKOGAWA INDIA LTD. 341 ITR 385 (KAR), IT WAS HELD THAT EVEN AFTER S. 10A/10B WERE CONV ERTED INTO A DEDUCTION PROVISION W.E.F 1.4.2001, THE BENEFIT OF RELIEF U/S 10A/10B IS IN THE NATURE OF EXEMPTION WITH REFERENCE TO COMMERCIAL PROFITS AND THAT AS THE INCOME OF THE S. 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, THE QUESTION OF SETTING OFF THE LOSS OF THE CURRENT YEAR S OR THE BROUGHT FORWARD BUSINESS LOSS (AND UNABSORBED DEPRECIATION) AGAINST THE S. 10A PROFITS DOES NOT ARISE. THEREFORE THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE (SUPRA) WILL NOT APPLY TO THE FACTS OF THE PRESENT CASE. 26. IN VIEW OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE DESERVES TO BE ACCEPTED. WE MAY ALSO OBSERVE THAT CBDT CIRCULAR NO.7 DATED 16.07.2013, ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IS NOT A BENEVOLENT CIRCULAR VIS - - VIS, THE ASSESSEE, AND THEREFORE THE DECISION TO THE CONTRARY OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA (SUPRA) WILL CONTINUE TO APPL Y. FOR THE REASONS GIVEN ABOVE, WE DIRECT THE ASSESSING OFFICER TO ACCEPT THE CLAIM OF THE ASSESSEE, AS RAISED IN GROUND NO.21. IT(TP)A NO.1219/BANG/2011 M/S.FLEXTRONICS TECHNOLOGICS INDIA PVT.LTD. PAGE 43 OF 43 10.5 ACCORDINGLY BY FOLLOWING THE LATEST JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT BASED ON THE SUBSTITUTED/AMEND ED PROVISIONS OF SEC.10A/10B WHICH ARE APPLICABLE IN THE CASE OF THE ASSESSEE AS WELL AS THE D ECISION OF THE TRIBUNAL IN CASE OF BIOCON (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO ALLOW DEDUCTION U/S 10A WITHOUT SETTING O FF THE DOMESTIC LOSSES. 11. GROUND NO.7 IS LEVY OF INTEREST U/S 234B WHICH IS MANDATORY AND CONSEQUENTIAL. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRON OUNCED IN THE OPEN COURT ON 23 RD NOVEMBER , 201 5 . S D/ - S D/ - ( G.MANJUNATHA ) ( VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER E KSRINIVASULU ,SPS COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE