INTERNATIONAL SPECIALITY PRODUCTS (INDIA) P LTD, NAVI MUMBAI V. ASST CIT 15(2)(1), MUMBAI

ITA 1279/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1773 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 23-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANAND MOHAN LD
• Keywords: Depreciation; Transfer pricing; International transaction; Question of law
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.(TP)A. NO.1279/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) M/S. INTERNATIONAL SPECIALTY PRODUCTS (INDIA) PVT. LTD. NO.601, 606-608 PLATINUM TECHNO PARK PLOT NO.17-18, SECTOR-30A MUMBAI-400 705. / VS. A CIT - 15(2)(1) MUMBAI. ! ./ ./PAN/GIR NO. AABCI-8200-Q ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : S/SHRI PVSS PRASAD / JITENDRA SINGH- LD.ARS / RESPONDENT BY : SHRI ANAND MOHAN- LD. CIT-DR / DATE OF HEARING : 02/04/2019 / DATE OF PRONOUNCEMENT : 06/06/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST FINAL ASSESSMENT ORDER DATED 23/12/2016 PASSED BY LD. ASSISTANT COMMISSIONER OF INCOME TAX-15(2)(1), MUMBAI [AO] U/S 143(3) READ WITH SECTION 144C(13) PURSUANT TO THE DIRECTIONS OF LD. DISPUTE RESOLUTION 2 PANEL-1, BENGALURU [DRP] U/S 144C(5) DATED 10/11/2016. THE ASSESSEE HAS RAISED 12 GROUNDS. GROUND NOS.1 & 12 ARE GENERA L IN NATURE WHEREAS GROUND NOS. 2 & 7 HAVE NOT BEEN PASSED BEFORE US DU RING HEARING. THE REMAINING EFFECTIVE GROUNDS READ AS UNDER: - CORPORATE / BACK OFFICE SUPPORT SERVICES 3. THE LD. AO / LD. DRP ARE NOT JUSTIFIED IN LAW IN CONSIDERING WRONG COMPARABLE AND CONSEQUENTLY ARRIVING AT A HIGH ARITHMETIC MEAN OF 22.90% (AFTER WORKING CAPITAL ADJUSTMENT OF 2.06%) AS A RATIO OF OP/OC AS AGAINST THE MARGIN OF 11.85% OF THE APPELLANT. 4. THE LD. AO / LD. DRP ARE NOT JUSTIFIED IN LAW IN MAKING AN ADJUSTMENT U/S 92CA OF RS.93,05,870/- TO THE PRICE RECEIVED BY THE APPE LLANT. 5. THE LD. AO / LD. DRP OUGHT TO HAVE REJECTED THE FOLLOWING COMPANIES WHICH WERE OBJECTED BY ASSESSEE ON THE GROUNDS OF FUNCTIO NAL DISSIMILARITY AND WHICH ARE ALSO REJECTED BY LD. DRP DURING AY 2011-12 I.E. , 6. THE LD. AO / LD. DRP ERRED IN NOT ACCEPTING THE ASSESSEES CONTENTION OF REJECTING CROSS DOMAIN SOLUTIONS PVT. LTD. ON THE G ROUNDS OF FUNCTIONAL DISSIMILARITY. R & D SERVICES 8. THE LD. AO / LD. DRP ARE NOT JUSTIFIED IN LAW IN CONSIDERING WRONG COMPARABLE AND CONSEQUENTLY ARRIVING AT A HIGH ARITHMETIC MEAN OF 19.30% AS A RATIO OF OP/OC. 9. THE LD. AO / LD. DRP ARE NOT JUSTIFIED IN LAW I N MAKING AN ADJUSTMENT U/S 92CA OF RS.50,53,176/- TO THE PRICE RECEIVED BY THE APPE LLANT. 10. THE LD. AO / LD. DRP ERRED IN NOT REJECTING OXY GEN BIO RESEARCH PVT. LTD. BEING FUNCTIONAL DIS-SIMILAR TO THAT OF ASSESSEE COMPANY. 11. THE APPELLANT COMPANY WOULD LIKE TO REJECT SYNG ENE INTERNATIONAL LTD. AS A COMPARABLE, FUNCTIONALLY DISSIMILAR THOUGH SELECTED ORIGINALLY IN THE TP STUDY, WHICH WAS NOT ACCEPTED BY LD. DRP. AS EVIDENT FROM GROUNDS OF APPEAL, THE ASSESSEE IS AGITATING EXCLUSION / INCLUSION OF CERTAIN COMPARABLE ENTITIES UNDER THE TWO SEGMENTS VIZ. S.NO. NAME OF COMPARAB LE COMPANY 1. ACCENTIA TECHNOLOGIES LTD. 2. ECLERX SERVICES LTD. 3. INFOSYS BPO LTD. 4. TCS E-SERVE LTD. 3 CORPORATE / BACK OFFICE SUPPORT SERVICES [REFERRED TO AS ITES SERVICES] AND R&D SERVICES. 2.1 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT CORPORATE ENTITY WAS STATED TO BE ENGAGED IN TRADING ACTIVITIES, R&D & PROVIDING CORPORATE SUPPO RT SERVICES DURING IMPUGNED AY. IN TRADING DIVISION, IT WAS EN GAGED IN DISTRIBUTION OF SPECIALTY CHEMICALS. THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE IMPUGNED AY ON 28/09/2012 AT RS.291.15 LACS . SINCE THE ASSESSEE ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WIT H ITS ASSOCIATED ENTERPRISES [AE] DURING IMPUGNED AY, A REFERENCE WA S MADE U/S 92CA(1) TO LD. DCIT (TRANSFER PRICING OFFICER)-2, HYDERABAD [TPO] FOR DETERMINATION OF ARMS LENGTH PRICE [ALP] OF THESE TRANSACTIONS. THE SUBJECT MATTER OF PRESENT APPEAL BEFORE US IS ISSUE OF COMPARABLE IN 2 SEGMENTS VIZ. (I) CORPORATE / BACK OFFICE SUPPORT SERVICES CLASSIFIED AS INFORMATION TECHNOLOGY ENABLED SERVICES [ITES]; (II) R & D SERV ICES. 2.2 THE ASSESSEE HAS PROVIDED THESE SERVICES TO ITS VARIOUS AES DURING IMPUGNED AY AND EARNED REVENUE OF RS.941.93 LACS FR OM ITES SERVICES AND REVENUE OF RS.758.64 LACS FROM PROVISION OF R & D SERVICES. THE REVENUE IN TRADING SEGMENTS AMOUNTED TO RS.3473.99 LACS. THE LD. TPO HAD PROPOSED AGGREGATE TP ADJUSTMENT OF RS.193.26 L ACS WHICH COMPRISED-OFF OF TP ADJUSTMENT OF RS.120.93 LACS UN DER ITES SEGMENT AND TP ADJUSTMENT OF RS.72.32 LACS UNDER CONTRACT R &D. HOWEVER, THE DIRECTIONS OF LD. DRP REDUCED THE PROPOSED ADJUSTME NT TO RS.143.59 LACS. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4 2.3 WE HAVE HEARD THE SUBMISSIONS MADE BY RESPECTIV E REPRESENTATIVE, IN THIS REGARD. AFTER CAREFUL CONSIDERATION OF THE SAM E AND MATERIAL ON RECORD, WE PROCEED TO ADJUDICATE THE ISSUES AS ARGUED BEFOR E US. I. ITES SERVICES 3.1 THE ITES SERVICES WERE BENCHMARKED BY THE ASSE SSEE USING TRANSACTIONAL NET MARGIN METHOD [TNMM] AS MOST APPR OPRIATE METHOD [MAM] USING COST-PLUS MARK- UP METHOD [OP/OC] AS PR OFIT LEVEL INDICATOR [PLI]. THE ASSESSEES MARGIN WERE REFLECTED AS 12% AS AGAINST MEAN MARGIN OF 12.91% REFLECTED BY 9 COMPARABLE USING PR OWESS AND CAPITALINE DATA BASES. SINCE THE MARGINS WERE WITHIN THE RANGE OF + 5%, NO TRANSFER PRICING ADJUSTMENT WAS PROPOSED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. 3.2 HOWEVER, INVOKING PROVISIONS OF SECTION 92C(3), THE ASSESSEES METHODOLOGY WAS REJECTED BY LD. TPO AND FRESH BENCH MARKING ANALYSIS WAS DONE AFTER APPLYING NEW FILTERS WHICH WERE AS F OLLOWS:- -COMPANIES WHOSE DATA WAS NOT AVAILABLE FOR FY 2011 -12 WERE EXCLUDED -COMPANIES WHOSE ITES INCOME WAS LESS THAN INR 1 CR ORE WERE EXCLUDED -COMPANIES HAVING ITES INCOME LESS THAN 75% OF THE TOTAL OPERATING REVENUE WERE EXCLUDED -COMPANIES WHOSE EXPORT SALES WERE LESS THAN 25% OF THE SALES WERE EXCLUDED -COMPANIES HAVING MORE THAN 25% OF RELATED PARTY TR ANSACTIONS WERE EXCLUDED -PERSISTENT LOSS-MAKING COMPANIES WERE EXCLUDED -COMPANIES HAVING DIFFERENT FINANCIAL YEAR WERE EXC LUDED -COMPANIES WHICH WERE FUNCTIONALLY DIFFERENT WERE E XCLUDED -COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES W ERE EXCLUDED. USING THE SAME DATABASES, 10 COMPARABLE WERE IDENTI FIED HAVING MEAN MARGIN OF 24.96% AGAINST WHICH CONCESSION FOR WORKI NG CAPITAL ADJUSTMENT 5 TO THE EXTENT OF 2.06% WAS PROVIDED. THE NET MARGIN S SO DERIVED WORKED OUT TO 22.90% AS AGAINST ASSESSEES MARGIN OF 12%. THE METHOD USED WAS THE SAME I.E. TNMM WITH PROFIT LEVEL INDICATOR [PLI ] AS OPERATING PROFIT / OPERATING COST OR EXPENSES. NON-OPERATING INCOMES A S WELL AS EXPENSES WERE EXCLUDED WHILE WORKING OUT THE MARGINS. IN THE PROCESS OF NEW BENCHMARKING ANALYSIS, ONLY ONE COMPARABLE NAMELY JINDAL INTELLICOM LTD. AS INITIALLY SELECTED BY THE ASSESSEE GOT SELECTED. THE SERVICES RENDERED BY ASSESSEE WERE CLASSIFIED AS ITES AND SEARCH WAS MAD E FROM DATABASES FOR COMPANIES ENGAGED IN RENDERING THOSE SERVICES. 3.3 ALTHOUGH, THE ASSESSEE OBJECTED TO WORKING OF L D. TPO INCLUDING THE FILTERS APPLIED AND COMPARABLE SELECTED BY LD. TPO. HOWEVER, THE SAME COULD NOT FIND FAVOR WITH LD. TPO. FINALLY, APPLYIN G MEAN MARGIN OF 22.90% TO ASSESSEES OPERATING COST, THE ARMS LENGTH PRIC E OF TRANSACTIONS WAS WORKED OUT TO BE RS.10.62 CRORES AS AGAINST RS.9.41 CRORES REFLECTED BY THE ASSESSEE. ACCORDINGLY, UPWARD TP REVISION OF RS .1.20 CRORES WAS PROPOSED IN THE ORDER. THE STAND OF LD. TPO, UPON C ONFIRMATION BY LD. DRP, IS UNDER CHALLENGE BEFORE US. 3.4 BEFORE LD. DRP, THE ASSESSEE, INTER-ALIA, RAISED OBJECTIONS AS TO PROPER ALLOCATION OF FOREIGN LOSSES. AFTER DUE CONS IDERATION, LD. DRP DIRECTED LD. AO TO ADOPT THE PROPER ALLOCATION OF F OREX LOSSES. HOWEVER, THE OTHER OBJECTIONS RAISED BY THE ASSESSEE COULD NOT F IND FAVOR WITH LD. DRP. THE DIRECTIONS OF LD. DRP REDUCED THE NET TP ADJUST MENT TO RS.143.59 IN THE FINAL ASSESSMENT ORDER DATED 23/12/2016, AGAINS T WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6 3.5 BEFORE US, THE LD. AR, ON THE STRENGTH OF VARIO US JUDICIAL PRONOUNCEMENTS AND CITING FUNCTIONAL DISSIMILARITIE S, RAISED ARGUMENTS FOR THE EXCLUSION OF FOLLOWING COMPARABLE: - I) ACCENTIA TECHNOLOGIES LTD. II) ECLERX SERVICES LTD. III) INFOSYS BPO LTD. IV) TCS E-SERVE LTD. V) CROSS DOMAIN SOLUTIONS PVT. LTD. THE LD. DR SUPPORTED THE COMPARABLE SELECTED BY THE LOWER AUTHORITY WHILE CONDUCTING BENCHMARKING ANALYSIS. THE LD. DR ALSO S UBMITTED THAT THE ASSESSEE FUNCTIONAL PROFILE WAS MAINLY KNOWLEDGE PR OCESS OUTSOURCING [KPO] AS RIGHTLY HELD BY LD. DRP. 3.6 WE HAVE CAREFULLY PERUSED THE RIVAL CONTENTIONS , MATERIAL ON RECORD AND DELIBERATED ON JUDICIAL PRONOUNCEMENTS AS CITED BEFORE US. THE BASIC FACTS AS ENUMERATED BY US IN PRECEDING PARAGRAPHS A RE NOT UNDER DISPUTE. THE ONLY DISPUTE RAISED BEFORE US BY LD. AR IS REGA RDING EXCLUSION OF THE 5 COMPARABLE AS STATED ABOVE. THEREFORE, WE RESTRICT OUR FINDING TO THE ISSUE OF SELECTION OF THESE 5 COMPARABLE. OUR ADJUDICATIO N WITH RESPECT TO THESE COMPARABLE IS GIVEN IN SUCCEEDING PARAGRAPHS. 3.6.1 ACCENTIA TECHNOLOGIES LTD. THE LD. TPO HAD FOUND THIS ENTITY AS COMPARABLE SIN CE THE ACTIVITY OF THIS ENTITY, IN THE OPINION OF LD. TPO, FALL UNDER ITES SERVICES ONLY. THE LD. DRP CONFIRMED THE SAME BY OBSERVING THAT THE ASSESSEE W AS ENGAGED IN PROVIDING HIGH END SERVICES TO ITS AE WHICH WOULD B E AKIN TO KPO SERVICES AND FURTHER THE ASSESSEE ACCEPTED 2 OTHER ENTITIES PROVIDING KPO SERVICES. DRAWING OUR ATTENTION TO EXTRACT FROM ANNUAL REPORT , LD. AR SUBMITTED THAT 7 THIS ENTITY WAS OFFERING COMPLETE HEALTHCARE DOCUME NTATION AS WELL AS RECEIVABLES MANAGEMENT INCLUDING INSTALLATION AND M AINTENANCE OF ALL SOFTWARE, HARDWARE AND BANDWIDTH INFRASTRUCTURE WHI CH COULD NOT BE TERMED AS AKIN TO ITES SERVICES AS PROVIDED BY THE ASSESSE E AND THEREFORE, IT WAS NOT FUNCTIONALLY COMPARABLE. FURTHER, THIS ENTITY H OLDS INTANGIBLES IN THE SHAPE OF GOODWILL, BRANDS AND IPRS AND COMPUTER & S OFTWARE WHICH ARE MORE THAN 59% OF VALUE OF ITS FIXED ASSETS. THE ATT ENTION HAS ALSO BEEN DRAWN TO THE FACT THAT THIS ENTITY WAS FOUND NOT CO MPARABLE BY LD.DRP IN IMMEDIATELY PRECEDING AY2011-12 ON ACCOUNT OF FUNCT IONAL DISSIMILARITY BY PLACING RELIANCE ON THE DECISION OF TRIBUNAL RENDER ED IN VODAFONE INDIA SER.PVT. LTD. [ITA NO.7140/M/12]. A COPY OF THE ORDER OF LD.DRP HAS BEEN PLACED ON RECORD. THE LD. DR COULD NOT CONTROVERT T HE SAID FACTUAL MATRIX. UPON PERUSAL OF ASSESSEES TP STUDY, AS PLACED ON R ECORD, WE FIND THAT THE ASSESSEE WAS ENGAGED IN PROVIDING APPLICATION SUPPO RT, ANALYTICAL SUPPORT, R&D SUPPORT TO ITS AE. THE ASSESSEE WAS RESPONSIBLE FOR IDENTIFICATION OF RESOURCES, RECRUITMENT OF MANPOWER, TRAINING, PROJE CT MANAGEMENT AND EXECUTION. THESE SERVICES WERE CHARACTERIZED AS ROU TINE SUPPORT SERVICES WITH LESS THAN NORMAL BUSINESS RISK. THESE SERVICES , IN OUR CONSIDERED OPINION, COULD NOT BE EQUATED WITH THE FUNCTIONS PE RFORMED BY ACCENTIA. THIS IS FURTHER EVIDENCED BY THE FACT THAT IN IMMED IATELY AY 2011-12, LD. DRP EXCLUDED THIS ENTITY ON FUNCTIONAL DISSIMILARIT Y. KEEPING IN VIEW THE FACT THAT NOTHING ON RECORD SUGGEST THAT THERE WAS ANY C HANGE IN FUNCTIONAL PROFILE OF THE ASSESSEE OR THE SAID ENTITY, WE DIRE CT FOR EXCLUSION OF THIS ENTITY. NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGE ST THAT THE REVENUE CONTESTED THE AFORESAID STAND OF LD. DRP, IN ANY MA NNER. 8 3.6.2 ECLERX SERVICES LTD. THE LD. AR HAS SUBMITTED THAT THIS ENTITYS OPERATI NG INCOME WAS APPROX. 51 TIMES THAN THAT OF THE ASSESSEE AND THEREFORE, T HE SAME COULD NOT BE TERMED AS PROPER COMPARABLE. RELIANCE HAS BEEN PLAC ED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT V/S PENTAIR WATER INDIA (P.) LTD. [2016 69 TAXMANN.COM 180] AS FOLLOWED BY MUMBAI TRIBUNAL IN INTEGREON MANAGED SOLUTIONS INDIA PVT. LTD. VS ACIT [2019 101 TAXMANN.COM 289]. ANOTHER POINT RAISED IS THE FACT THAT THERE WAS AN EXTRAORDINARY EVENT IN THE CASE OF THIS COMPANY SINCE IT ACQUIRED ANOTH ER US ENTITY NAMELY AGILYST INC. AND THEREFORE, THE SAME COULD NOT BE A SUITABLE COMPARABLE IN TERMS OF DECISION OF DELHI TRIBUNAL RENDERED IN EXEVO INDIA P. LTD. V/S DCIT [ 2018 89 TAXMANN.COM 48]. WE FIND THAT LD. TPO HAD FOUND THIS ENTITY COMPARAB LE. THE LD. DRP OBSERVED THAT HUGE PROFIT OR HUGE TURNOVER, IPSO FA CTO, DOES NOT LEAD TO ITS EXCLUSION. WE FIND THAT THE FACT THAT THIS ENTITY HAD OPERATIN G INCOME OF MORE THAN 51 TIMES THAN THAT OF ASSESSEE, HAS NOT BEEN DISPUTED BY THE REVENUE BEFORE US. THIS BEING SO, THE RATIO OF DECISION OF HONBLE BOMBAY HIGH COURT IN IN CIT V/S PENTAIR WATER INDIA (P.) LTD. [SUPRA] WOULD BECOME APPLICABLE WHEREIN IT HAS BEEN OBSERVED AS UNDER: - 5. ON PERUSAL OF THE IMPUGNED ORDER PASSED BY THE TRI BUNAL DATED 23.05.2014, WE FIND THAT THE TRIBUNAL HAS RECORDED THE REASONS FOR NOT ACCEPTING THE SAID THREE COMPANIES ARE COMPARABLE BY STATING AS FOLLOWS : ( I ) HCL COMNET SYSTEMS & SERVICES LTD :- WE FI ND FORCE IN THE SUBMISSION OF THE LD. AR THAT THIS COMPANY CANNOT BE A COMPARABLE AS THE TURNOVER OF THIS COMPANY IS 260.18 CRORES WHILE IN THE CASE OF THE ASSESSEE, TH E TURNOVER IS AROUND RS. 11 CRORES ONLY. WHILE MAKING THE SELECTION OF COMPARAB LES, THE TURNOVER FILTER, IN OUR OPINION, HAS TO BE THE BASIS FOR SELECTION. A COMPA NY HAVING TURNOVER OF RS. 11 CRORES CANNOT BE COMPARED WITH A COMPANY WHICH IS HAVING TURNOVER OF RS. 260 CRORES WHICH IS MORE THAN 23 TIMES THE TURNOVER OF THE ASSESSEE. THIS COMPA NY 9 CANNOT BE REGARDED TO BE IN EQUAL SIZE TO THE ASSES SEE. WE, ACCORDINGLY, DIRECT THE AO TO EXCLUDE THIS COMPANY OUT OF THE COMPARABLES. ( II ) INFOSYS BPO LTD.:- IN THIS CASE ALSO WE NOTED THE TURNOVER IN RESPECT OF TH IS COMPANY IS RS. 649.56 CRORES WH ILE THE TURNOVER OF THE ASSESSEE COMPANY IS AROUND RS. 11 CRORES WHICH IS MUCH MORE THAN 65 TIM ES OF THE ASSESSEE'S TU RNOVER. WE, THEREFORE, DO NOT FIND ANY ILLEGALITY OR INFIRM ITY IN THE ORDER OF CIT (A) IN EXCLUDING THIS COMPANY OUT OF THE COMPARABLES. ACCO RDINGLY, WE CONFIRM THE ORDER OF THE CIT (A). ( III ) WIPRO LTD. :- AFTER HEARING THE RIVAL SUBMISSIONS , WE NOTED THAT THE CIT (A) APPLYING THE TURNOVER FILTER HAS EXCLUDED THIS COMPANY OUT O F THE COMPARABLES. THE TURN OVER REPORTED IN THE CASE OF WIPRO LTD. IS RS. 939.78 CR ORES WHILE IN THE CASE OF THE ASSESSEE THE TURNOVER IS AROUND RS. 11 CRORES. THER EFORE, ON THE B ASIS OF THE TURNOVER FILTER ITSELF THIS COMPANY CANNOT BE REGAR DED TO BE COMPARABLE TO THE ASSESSEE COMP ANY AND ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY I N THE FINDING OF CIT (A) WHILE HE EXCLUDED THIS COMPANY ON THE TURNOVER CRITERIA FOLLOWING THE DECISI ON OF THIS TRIBUNAL IN : SONY INDIA (P.) LTD. V. DY. CIT [2008] 114 ITD 448 (DELHI) E-GAIN COMMUNICATION (P.) LTD. V. ITO [2008] 23 SOT 385 (PUNE) DELOITTEE CONSULTING INDIA (P.) LTD. V. DY. CIT [2013] 144 ITD 451/36 TAXMANN.COM 68 (HYD.) GENISYS INTEGRATING SYSTEM (INDIA) (P.) LTD. V. DY. CIT [2012] 53 SOT 159/20 TAXMANN.COM 715 (BANG.) 6. THE SAID FINDINGS OF THE TRIBUNAL IN RESPECT OF TH E SAID THREE COMPANIES ARE ON THE BASIS OF APPRECIATION OF EVIDENCE ON RECORD. WE FIND NO INFI RMITY IN THE SAID FINDINGS OF THE TRIBUNAL ON THAT COUNT. IN FACT, THE TRIBUNAL HAS ENDORSED THE VIEWS OF THE CIT APPEALS WHILST COMING TO SUCH CONCLUSIONS. THE CONCURRENT FINDINGS OF FACTS ARRIV ED AT BY THE AUTHORITIES BELOW, CANNOT BE RE- APPRECIATED BY THIS COURT IN THE PRESENT APPEAL. 7. IN THIS CONNECTION, THE APEX COURT IN THE JUDGMENT REPORTED IN THE CASE OF VIJAY KUMAR TALWAR V. CIT [2011] 1 SCC 673 HAS OBSERVED AT PARA 23 THUS : '23. A FINDING OF FACT MAY GIVE RISE TO A SUBSTANTI AL QUESTION OF LAW, INTER ALIA, IN THE EVENT THE FINDINGS ARE BASED ON NO EVIDENCE AND/OR WHILE ARRI VING AT THE SAID FINDING, RELEVANT ADMISSIBLE EVIDENCE HAS NOT BEEN TAKEN INTO CONSIDERATION OR I NADMISSIBLE EVIDENCE HAS BEEN TAKEN INTO CONSIDERATION OR LEGAL PRINCIPLES HAVE NOT BEEN APP LIED IN APPRECIATING THE EVIDENCE, OR WHEN THE EVIDENCE HAS BEEN MISREAD. (SEE MADAN LAL V. GOPI , NARENDRA GOPAL VIDYARTHI V. RAJAT VIDYARTHI , COMMR. OF CUSTOMS V. VIJAY DASHARATH PATEL , METROARK LTD. V. CCE AND W.B. ELECTRICITY REGULATORY COMMISSION V. CESC LTD )' 8. IN THE PRESENT APPEAL, THE APPELLANT-REVENUE HAS N OT BEEN ABLE TO CONTROVERT OR DENY THE DATA RELIED UPON BY THE AUTHORITIES BELOW TO COME TO SUCH CONCL USION. THE SAID COMPANIES ARE NO DOUBT LARGE AND DISTINCT COMPANIES WHERE THE AREA OF DEVELOPMENT OF SUBJECT SERVICES ARE DIFFERENT AND AS SUCH THE PROFIT EARNED THEREFROM CANNOT BE A BENCH-MARKED OR EQUATED WITH THE RESPONDENT- COMPANY. 9. SHRI JAIN, LEARNED COUNSEL HAS RIGHTLY RELIED UPON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT V. AGNITY INDIA TECHNOLOGIES (P.) LTD. [2013] 219 TAXMAN 26/36 TAXMANN.COM 289 . LEARNED COUNSEL HAS ALSO BROUGHT TO OUR NOTICE THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL WHILST EXAMINING SIMILAR CIRCUMSTANCES FOR THE ASSESSMENT YEAR 2005-06. HE HAS TAKEN US THROUGH THE FINDINGS THEREIN TO POINT OUT THAT THE CONCLUSIONS ARRIVED AT ARE BASED ON A COMPARISON THAT THE CONDITION IN ANY UNCONTROLLED TRANSACTION BETWEEN A N INDEPENDENT ENTERPRISE FOR THE PURPOSE OF SUCH COMPARISON, ECONOMICALLY RELEVANT CHARACTERISTICS M UST BE SUFFICIENTLY COMPARABLE IF TWO PARTIES ARE T O BE PLACED IN A SIMILAR SITUATION. LEARNED COUNSEL A S SUCH SUBMITTED THAT IT IS NOT OPEN FOR THE APPELL ANT TO NOW CONTEND A DIFFERENT CRITERION TO ASCERTAIN T HE COMPARABILITY. IN FACT THE TRIBUNAL WHILST PASSI NG THE IMPUGNED ORDER HAS CONSIDERED THE SAID PRINCIPLES W HILST COMING TO THE CONCLUSION THAT THE SAID THREE 10 COMPANIES CANNOT BE TREATED TO BE COMPARABLE TO THE RESPONDENT-ASSESSEE COMPANY. THE TURN OVER IS OBVIOUSLY A RELEVANT FACTOR TO CONSIDER THE COMP ARABILITY. 10. IN VIEW OF THE ABOVE, WE FIND THAT THE SAID TWO SU BSTANTIAL QUESTIONS OF LAW PROPOSED BY THE LEARNED COUNSEL APPEARING FOR THE APPELLANT DO NOT ARISE IN THE PRESENT APPEAL TAKING NOTE OF THE CONCURRENT FINDINGS OF FACT ARRIVED AT BY THE AUTHORITIES BELO W. THE APPEAL STANDS ACCORDINGLY REJECTED. THE AFORESAID DECISION HAS SUBSEQUENTLY BEEN FOLLOW ED BY THIS TRIBUNAL IN THE CITED DECISION. NO CONTRARY DECISION HAS BEEN P LACED ON RECORD. FURTHER DELHI TRIBUNAL IN THE CITED DECISION HAS DIRECTED F OR EXCLUSION OF THIS ENTITY IN VIEW OF THE FACT THAT THIS ENTITY WAS PROVIDING SER VICES IN VARIETY OF FIELDS FOR WHICH HIGHLY SKILLED PERSONNEL WERE REQUIRED AND SE GMENTAL INFORMATION WAS NOT AVAILABLE IN RESPECT OF EACH CATEGORY OF SE RVICES RENDERED. IT WAS ALSO OBSERVED THAT DURING THE YEAR, THIS ENTITY HAD ACQUIRED AGILYST INC., A US COMPANY PROVIDING OPERATIONS AND A TANTALIZING S UPPORT TO SOME OF THE LARGEST CABLE AND TELECOMMUNICATIONS COMPANIES IN T HE WORLD. RESPECTFULLY FOLLOWING THE SAME, HOLDING THAT SCALE OF OPERATION WAS A SIGNIFICANT CRITERION FOR THE PURPOSE OF BENCHMARKING ANALYSIS AND FINDING THAT THIS ENTITY WAS FUNCTIONALLY DISSIMILAR, WE DIRECT FOR E XCLUSION OF THIS COMPARABLE. 3.6.3 INFOSYS BPO LTD. IT HAS BEEN SUBMITTED THAT THE OPERATING INCOME OF THIS ENTITY IS MORE THAN 138 TIMES THAN THAT OF THE ASSESSEE AND THEREFORE, IT COULD NOT BE TERMED AS GOOD COMPARABLE IN TERMS OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT V/S PENTAIR WATER INDIA (P.) LTD. [2016 69 TAXM ANN.COM 180] AS FOLLOWED BY MUMBAI TRIBUNAL IN INTEGREON MANAGED SOLUTIONS INDIA PVT. LTD. VS ACIT [2019 101 TAXMANN.COM 289]. FURTHER RELIANCE HAS BEEN PLACED ON THE DECISION OF DELHI TRIBUNAL IN BAXTER INDIA PVT. LTD. V/S ACIT [2017 85 TAXMANN.COM 285]. IT HAS FURTHER BEEN SUBMITTED THAT THERE WAS ON EXTRAORDINARY EVENT IN THIS ENTITY SINCE IT ACQU IRED AN AUSTRALIAN BASED 11 COMPANY NAMELY M/S PORTLAND GROUP PTY. LTD. AS NOTE D BY BANGALORE TRIBUNAL IN MOBILY INFOTECH INDIA PVT. LTD. VS DCIT [2018 97 TAXMANN.COM 2]. APPLYING THE RATIO OF DECISION OF HONBLE BOMBAY HI GH COURT IN CIT V/S PENTAIR WATER INDIA (P.) LTD. [SUPRA], IN SIMILAR MANNER, WE DIRECT FOR EXCLUSION OF THIS ENTITY. THIS IS FURTHER FORTIFIED BY THE DECISION OF DELHI TRIBUNAL IN BAXTER INDIA PVT. LTD. V/S ACIT [SUPRA], FOR SAME AY, WHEREIN THE CO-ORDINATE BENCH DIRECTED FOR EXCLUSION OF THI S ENTITY ON ACCOUNT OF FUNCTIONAL DISSIMILARITY AND EXTRA-ORDINARY EVENTS WHICH TOOK PLACE DURING THE YEAR. SIMILAR IS THE VIEW OF BANGALORE TRIBUNAL IN MOBILY INFOTECH INDIA PVT. LTD. VS DCIT [SUPRA]. 3.6.4 TCS E-SERVE LTD. IT HAS BEEN SUBMITTED THAT THIS ENTITY IS BROADLY I NTO KPO SERVICES AS EVIDENCED BY ITS ANNUAL REPORT. RELIANCE HAS BEEN P LACED ON THE DECISION OF BANGALORE TRIBUNAL IN MOBILY INFOTECH INDIA PVT. LTD. VS DCIT [2018 97 TAXMANN.COM 2]. FURTHER, THE SCALE OF OPERATING INCOME WOULD NOT JU STIFY INCLUSION AS AN APPROPRIATE COMPARABLE IN TERMS OF DECISION OF HONBLE BOMBAY HIGH COURT IN CIT V/S PENTAIR WATER INDIA (P.) LTD. [2016 69 TAXMANN.COM 180] AS FOLLOWED BY MUMBAI TRIBUNAL IN INTEGREON MANAGED SOLUTIONS INDIA PVT. LTD. VS ACIT [2019 101 TAXMANN .COM 289]. UPON PERUSAL OF CITED DECISION OF BANGALORE TRIBUNA L FOR SAME AY, RENDERED IN CASE OF ASSESSEE HAVING SIMILAR FUNCTIONAL PROFI LE, WE FIND THAT THIS ENTITY HAS BEEN DIRECTED TO BE EXCLUDED SINCE IT WAS ENGAG ED IN PROVIDING HIGH END KPO SERVICES. SECONDLY, APPLYING THE SCALE OF O PERATION CRITERIA AS 12 APPROVED BY HONBLE BOMBAY HIGH COURT IN CIT V/S PENTAIR WATER INDIA (P.) LTD. [SUPRA], WE DIRECT FOR EXCLUSION OF THIS ENTITY. 3.6.5 CROSS DOMAIN SOLUTIONS PVT. LTD. THE LD. AR HAS SUBMITTED THAT THIS ENTITY IS NOT FU NCTIONALLY COMPARABLE SINCE IT WAS ENGAGED IN PROVIDING HIGH END KPO SERV ICES AS AGAINST THE SERVICES RENDERED BY ASSESSEE WHICH WERE IN THE NAT URE OF LOW-RISK SUPPORT AND INCIDENTAL SERVICES. OUT ATTENTION HAS BEEN DRA WN TO THE FACT THAT THE SAID ENTITY WAS PROVIDING DIVERSIFIED KPO SERVICES IN INSURANCE, HEALTH CARE, HR AND ACCOUNTING DOMAINS AND WAS OFFERING BUSINESS EXCELLENCE, MARKET RESEARCH AND DATA ANALYTICS AND IT SERVICES. RELIAN CE HAS BEEN PLACED ON THE DECISION OF BANGALORE TRIBUNAL IN GLOBAL E-BUSINESS OPERATIONS PVT LTD V/S DCIT [ITA NO. 1678/BANG/2012] FOR THE EXCLUSION OF THE SAME. UPON CAREFUL CONSIDERATION, WE FIND THAT LD. DRP HA S RELIED UPON THE DECISION OF HYDERABAD TRIBUNAL RENDERED IN M/S EXCELLENCE DATA RESEARCH PVT. LTD. [ITA NO.159/HYD/2015] WHEREIN THE NATURE OF THE SERVICES WAS FOUND TO BE SIMILAR TO ITES FILED. THE CITED DECISION OF BANGALORE TRIBUNAL PERTAINS TO AY 2008-09 AND THERE FORE, WOULD NOT THROW MUCH LIGHT ON THE NATURE OF SERVICES BEING RENDERED BY THIS ENTITY. THEREFORE, WE DEEM IT FIT TO RESTORE THE MATTER BAC K TO LD. AO / LD. TPO TO APPRECIATE THE FUNCTIONAL PROFILE OF THIS ENTITY AN D RE-ADJUDICATE THE SAME AS URGED BY LD. AR WITH A DIRECTION TO THE ASSESSEE TO SUBSTANTIATE THE SAME. 3.7 GROUND NOS. 3,4,5 STANDS ALLOWED TO THE EXTENT AS INDICATED IN THE ORDER. GROUND NO. 6 STANDS ALLOWED FOR STATISTICAL PURPOSES. 13 II. CONTRACT RESEARCH & DEVELOPMENT SERVICES 4.1 THESE SERVICES WERE BENCHMARKED USING THE SAME METHODOLOGY. IN ASSESSEES TP STUDY, MEAN MARGIN OF 9 ENTITIES WAS SHOWN AS 12.91% AS AGAINST 12% REFLECTED BY THE ASSESSEE. THE LD. TPO, REJECTED ASSESSEES METHODOLOGY ON SIMILAR LINES AND IDENTIFIED 5 FRESH COMPARABLE WITH MEAN MARGIN OF 19.30% AND SUGGESTED TP ADJUSTMENT OF RS. 72.32 LACS AGAINST THE SAME. THE STAND OF LD. TPO, UPON CONFIRMATION B Y LD. DRP, IS UNDER CHALLENGE BEFORE US. 4.2 BEFORE US, THE LD. AR HAS CANVASSED FOR EXCLUSI ON OF 2 COMPARABLE VIZ. OXYGEN BIO RESEARCH PVT. LTD. & SYNGENE INTERN ATIONAL LTD. THE PERUSAL OF ASSESSEES TP STUDY REVEAL THAT THE ASSE SSEES AE WAS TO PROVIDE BASIC DESIGNING FOR UNDERTAKING R & D ACTIV ITY AND AE WOULD PLACE WORK ORDER WITH THE ASSESSEE SPECIFYING THE SCOPE O F R&D TO BE CARRIED OUT BY THE ASSESSEE. OUR ADJUDICATION WITH RESPECT TO T WO COMPARABLE IS GIVEN IN SUCCEEDING PARAGRAPHS. 4.3.1 OXYGEN BIO RESEARCH THE LD. AR HAS SUBMITTED THAT COMPLETE SET OF ANNUA L REPORT FOR THIS YEAR WAS NOT AVAILABLE IN PUBLIC DOMAIN AND THEREFORE, C OMPARISON WOULD NOT BE FEASIBLE. ANOTHER ARGUMENT IS THAT THE SAID ENTITY HAS BEEN ACQUIRED BY ANOTHER ENTITY DURING THE IMPUGNED AY. LASTLY, THER E WAS CHANGE IN METHOD OF DEPRECIATION POLICY DURING FY 2010-11 WHICH HAS AFFECTED ITS PROFITABILITY AND THEREFORE, THE SAME WOULD NOT BE A COMPARABLE E NTITY. RELIANCE HAS BEEN PLACED ON THE DECISION OF HYDERABAD TRIBUNAL RENDERED IN CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. V/S DCIT [2013 32 TAXMANN.COM 21]. HOWEVER, UPON PERUSAL, WE FIND THAT ALL THESE ARGUM ENTS HAVE ALREADY 14 BEEN DEALT WITH BY LD. DRP WHICH REMAINED UNCONTROV ERTED BEFORE US. THEREFORE, THE STAND OF LD. DRP, IN THIS REGARD, WO ULD NOT REQUIRE ANY INTERFERENCE ON OUR PART. REGARDING ISSUE OF CHANGE IN DEPRECIATION POLICY, LD. DRP HAS ALREADY DIRECTED THE LD.AO TO COMPARE T HE MARGINS OF THE TESTED PARTY AND THE COMPARABLE BEFORE CHARGING DEP RECIATION. THE LD. AR HAS PLACED ON RECORD THE WORKING OF THE SAME. THERE FORE, ENDORSING THE SAME, WE DIRECT LD. TPO / LD. AO TO CONSIDER PROFIT BEFORE DEPRECIATION FOR THE PURPOSE OF BENCHMARKING ANALYSIS. 4.3.2 SYNGENE INTERNATIONAL LTD THIS COMPANY WAS ORIGINALLY SELECTED BY THE ASSESSE E IN ITS BENCHMARKING ANALYSIS BUT THE SAME WAS REJECTED BY LD. TPO ON TH E GROUND OF FUNCTIONAL DISSIMILARITY AND THE SAME WAS STATED TO BE WRONGLY INCLUDED. HOWEVER, LD. DRP DID NOT AGREE WITH ASSESSEES SUBMISSIONS. THE LD. AR, REITERATING THE SAME, SUBMITTED THAT TH IS COMPANY WAS FOUND FUNCTIONALLY NON-COMPARABLE AND WRONGLY INCLUDED IN THE FINAL LIST OF COMPARABLE. IT HAS BEEN SUBMITTED THAT RPT OF THIS ENTITY IS GREATER THAN 25% AND THEREFORE, THE SAME WOULD NOT BE A GOOD COM PARABLE. IT HAS FURTHER BEEN SUBMITTED THAT OPERATING INCOME OF THI S ENTITY IS MORE THAN 52 TIMES THAN THAT OF THE ASSESSEE. UPON PERUSAL, WE FIND THAT THE ASSESSEES SUBMISSIO NS WOULD REQUIRE VERIFICATION AND THEREFORE, WE DEEM IT FIT TO RESTO RE THE MATTER OF THIS COMPARABLE TO THE FILE OF LD. TPO / LD. AO FOR RE-A DJUDICATION IN THE LIGHT OF SUBMISSIONS MADE BY LD. AR. THE ASSESSEE, IN TURN, IS DIRECTED TO SUBSTANTIATE THE SAME. 15 4.4 GROUND NOS.8,9 & 11 STAND ALLOWED FOR STATISTIC AL PURPOSES WHEREAS GROUND NO. 10 STAND DISMISSED. 5. THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JUNE, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06/06/2019 SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !% / THE APPELLANT 2. &'!% / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. ( )& * , * , / DR, ITAT, MUMBAI 6. ) ,-. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.