M/s. Saven Technologies Limited, Hyderabad V. ACIT, Hyderabad

ITA 1456/HYD/2010

• Counselvise Citation: 145622514 RSA 2010
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 25-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKARA RAO
• Assessee Lawyers: PVVS PRASAD
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Right to appeal
• Section: 143(3); 92B; 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND S HRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1456/HYD/2010 ASSESSMENT YEAR: 2006-07. M/S SAVEN TECHNOLOGIES LTD., -V- ACIT, CIR-3(1), HYDERABAD. HYDERABAD. PAN:AAGCS8423A (APPELLANT) (RESPONDENT) APPELLANT BY SHRI PVVS PRA SAD RESPONDENT BY SHRI D. SUDHAKARA RAO DATE OF HEARING 12 - 11 - 2014. DATE OF PRONOUNCEMENT 10 - 0 1 - 2014 ORDER PER SAKTIJIT DEY, J.M: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER DATED 5-10-2010 OF THE ASSESSING OFFICER PAS SED U/S 143(3) OF THE I.T, ACT ON THE DIRECTIONS OF DISPUTE RESOLU TION PANEL (DRP), HYDERABAD U/S 144C(5) OF THE ACT. 2. BRIEFLY STATED THE FACTS ARE, THE ASSESSEE IS A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956. THE ASS ESSEE IS ENGAGED IN CONTRACT PROGRAMMING WHICH OTHERWISE IS KNOWN AS BODY SHOPPING. TO UNDERSTAND THE ACTIVITIES OF T HE ASSESSEE IN SIMPLE TERMS, IT CAN BE EXPLAINED THAT THE ASSESSEE RECRUITS CONSULTANTS FROM INDIA AND SEND THEM TO SAVEN TECHN OLOGIES INC., USA (ASSOCIATED ENTERPRISE, IN SHORT AE). THE AE W HICH IS A SUBSIDIARY IS A SERVICE COMPANY WHICH OFFERS CONSUL TING AND ON- SITE CONTRACT PROGRAMME. THE CONSULTANTS SENT FROM INDIA ARE DEPUTED TO CLIENTS SITE BY AE TO CARRY OUT JOBS AS PER ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 2 REQUIREMENTS OF THE CLIENTS. THE ASSESSEE RAISED I NVOICE ON ITS AE FOR BILLING DONE BY THE CONSULTANTS DEPUTED BY IT. THE AE IN TURN BILLS PRIME VENDOR I.E., THE CONTRACTOR WHO IN TURN BILLS THE CUSTOMER. IT IS PRIME VENDOR WHO GETS THE JOBS FRO M THE CUSTOMERS AND HIRES THE SUB-CONTRACTORS LIKE THE A SSESSEES AE. THE PRIME VENDOR DOES THE ULTIMATE BILLING TO THE CUSTOMER. MAJORITY OF BUSINESS IS DONE THROUGH THE PRIME VEND OR AND IT IS THE CLAIM OF THE ASSESSEE THAT IT IS NOT ENGAGED IN AN Y OTHER ACTIVITY DURING THE YEAR EXCEPT BODY SHOPPING. FOR THE IMPU GNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN O F INCOME ON 30- 11-2006 DECLARING TOTAL INCOME AT NIL AFTER CLAIMIN G EXEMPTION U/S 10B OF THE ACT AS AN STPI UNIT. DURING SCRUTINY ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT TH E ASSESSEE HAS EARNED REVENUE FROM INTERNATIONAL TRANSACTIONS EXCE EDING RS.6.5 CRORES DURING THE YEAR MADE A REFERENCE TO THE TPO FOR DETERMINING THE ALP. IN THE COURSE OF THE PROCEED INGS BEFORE THE TPO, ON EXAMINING THE TP DOCUMENT SUBMITTED ALONG WITH RETURN THE TPO NOTICED THAT THE ASSESSEE HAD SELECTED TWO COMPARABLES BY APPLYING CERTAIN FILTERS. IN RESPONSE TO THE Q UERY MADE, THE ASSESSEE SUBMITTED FURTHER INFORMATION BEFORE THE T PO. THE TPO FURTHER NOTED THAT DURING THE YEAR, THE ASSESSEE HA S REPORTED REVENUE FROM INTERNATIONAL TRANSACTION OF RENDERING CONSULTANCY SERVICES TO ITS AE AT RS.6,35,16,889/-. IT WAS CON TENDED BY THE ASSESSEE BEFORE THE TPO THAT SINCE THE ASSESSEE WAS ENGAGED IN THE BODY SHOPPING ACTIVITY AND NOT IN SOFTWARE DEVE LOPMENT AT ALL, NO COMPARABLE COMPANIES IN SIMILAR LINE OF BUSINESS WERE AVAILABLE IN DATA BASES FOR BODY SHOPPING VERTICALS. THE ASS ESSEE THEREFORE SELECTED COMPARABLES FROM ITES SECTOR WHICH ARE ENG AGED IN MEDICAL BILLING DATA ENTRY WORK FOR UNRELATED CUSTO MERS IN USA. THE TPO HOWEVER REJECTED THE TP DOCUMENTATION MADE BY THE ASSESSEE BY POINTING OUT THE FOLLOWING DEFECTS. ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 3 I) THERE IS COMPLETE DISCONNECT BETWEEN SEARCH OF COMPARABLES AND COMPARABILITY ANALYSIS. THE ASSESSE E HAD ADOPTED A MECHANICAL APPROACH WHILE SELECTING COMPARABLES ON THE DATA BASES WITHOUT EXAMINING THE COMPARABILITY FACTORS CONTAINED IN RULE 10B (2) OF THE RULES. II) CURRENT YEAR DATA IS TO BE USED AS PER RULE 10 B (4) III) THE ASSESSEE HAS APPLIED RELATED PARTY TRANSA CTION FILTER IN SUCH A WAY THAT THE ENTIRE EMPHASIS HAS SHIFTED TO THE AES AND NOT TO THE AE TRANSACTIONS. WHEREAS THE ASSESSEE SHOULD HAVE EXCLUDED THE COMPANIES HAVING MORE THAN 25% RELATED PARTY TRANSACTIONS. IV) THE ASSESSEE HAS CONSIDERED THE COMPANIES AS COMPARABLES EVEN THOUGH THEY ARE NOT FUNCTIONALLY SIMILAR V) THE ASSESSEE HAS TAKEN THE COMPANIES AS COMPARAB LES EVEN THOUGH THEY DO NOT WORK IN SAME ECONOMIC CIRCUMSTANCES AS THAT OF THE ASSESSEE. VI) THE ASSESSEE HAS REJECTED THE COMPANIES HAVING SALES IN THE TURNOVER RANGE OF LESS THAN RS. 2 CRORES AND MORE THAN RS.25 CRORES WITHOUT ANY JUSTIFIABLE REASON. VII) THE ASSESSEE HAS NOT SELECTED PREDOMINANTLY ON SITE COMPANIES. VIII) NONE OF THE COMPARABLES SELECTED BY THE ASSES SEE STAND THE SCRUTINY OF FAR ANALYSIS. AFTER REJECTING THE TP STUDY OF THE ASSESSEE AND HO LDING THAT TNMM IS THE MOST APPROPRIATE METHOD FOR COMPUTING T HE ALP, THE TPO UNDERTOOK A SEARCH OF THE DATA BASES AND SELECT ED 13 COMPARABLE COMPANIES HAVING AVERAGE OF OP/TC AT 24%. . WITH A NEGATIVE CAPITAL ADJUSTMENT OF (-)0.21%, THE ADJU STED ARITHMETIC MEAN PLI WORKED OUT TO 24.21%. APPLYING THE ARMS LENGTH ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 4 MARGIN OF 124.21% TO THE OPERATING COST OF 6,90,67 ,673 THE ALP WAS DETERMINED AT RS.8,57,88,956/-. THE ASSESSEE H AVING SHOWN THE PRICE OF INTERNATIONAL TRANSACTIONS AT RS.7,38, 43,652/- THE SHORT FALL OF RS.1,19,44,304 WAS TREATED AS THE ADJ USTMENT U/S 92CA OF THE ACT. IN TERMS WITH THE ADJUSTMENT MAD E BY THE TPO, THE ASSESSING OFFICER PASSED A DRAFT ASSESSMENT ORD ER MAKING ADDITION OF TRANSFER PRICING ADJUSTMENT IN TERMS OF THE ORDER PASSED BY THE TPO. THE ASSESSING OFFICER ALSO WORKE D OUT THE DEDUCTION U/S 10B BY REDUCING THE VISA PROCESSING C HARGES AND RELOCATION CHARGES FROM EXPORT TURNOVER. AGAINST THE DRAFT ASSESSMENT ORDER SO PASSED, THE ASSESSEE FILED OBJE CTION BEFORE THE DRP. 3. THE DRP HOWEVER REJECTED ALL THE OBJECTIONS RAIS ED BY THE ASSESSEE AND CONFIRMED THE DRAFT ASSESSMENT ORDER. IN TERMS WITH THE DIRECTION OF THE DRP, THE ASSESSING OFFICE R PASSED THE IMPUGNED ASSESSMENT ORDER. BEING AGGRIEVED OF THE AFORESAID ASSESSMENT ORDER, THE ASSESSEE HAS PREFERRED THE P RESENT APPEAL BY RAISING ALTOGETHER 9 GROUNDS. 4. GROUNDS 1 AND 9 BEING GENERAL IN NATURE ARE NOT REQUIRED TO BE ADJUDICATED UPON. 5. IN GROUND NOS. 2 AND 3, THE ASSESSEE HAS OBJECTE D TO SELECTION OF TNMM AS THE MOST APPROPRIATE METHOD AS AGAINST CPM ADOPTED BY THE ASSESSEE. THE LEARNED AR WHILE ARG UING ON THE AFORESAID GROUNDS SUBMITTED BEFORE US THAT DURING T HE YEAR, THE ASSESSEE HAD MADE SALE TRANSACTIONS OF SERVICES TO BOTH AE AND TO UNRELATED PARTIES. SINCE NECESSARY DATA TO BENCH M ARK AND DETERMINE THE ALP IS AVAILABLE IN THE FORM OF MARGI N ON SERVICES TO UNRELATED PARTIES THE ASSESSEE ADOPTED CPM FOR DETE RMINING THE ALP FOR ITS INTERNATIONAL TRANSACTION. THE LEARNE D AR SUBMITTED THAT THE OECD GUIDELINES CLEARLY LAYS DOWN THAT A MARKUP IS ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 5 MEASURED BY REFERENCE TO MARGINS COMPUTED AFTER DI RECT AND INDIRECT COSTS INCURRED BY A SUPPLIER OF PROPERTY O R SERVICES IN A TRANSACTION. THE COST PLUS MARK-UP OF THE SUPPLI ER IN THE CONTROLLED TRANSACTIONS SHOULD IDEALLY BE ESTABLISH ED BY REFERENCE TO THE COST PLUS MARK OF THAT THE SAME SUPPLIER EAR NS IN COMPARABLE UNCONTROLLED TRANSACTIONS. IN ADDITION, THE COST PLUS MARK UP THAT WOULD HAVE BEEN EARNED IN COMPARABLE T RANSACTIONS BY AN INDEPENDENT ENTERPRISE MAY SERVE AS A GUIDE. AN UNCONTROLLED TRANSACTION IS COMPARABLE TO A CONTROL LED TRANSACTION (I.E., IT IS A COMPARABLE TO UNCONTROLLED TRANSACTI ON) FOR THE PURPOSE OF COST PLUS METHOD IF ONE OF THE TWO CONDI TIONS IS MET. (I) NONE OF THE DIFFERENCES (IF ANY) BETWEEN THE TR ANSACTIONS BEING COMPARED OR BETWEEN THE ENTERPRISES UNDERTAKING THO SE TRANSACTIONS MATERIALLY AFFECT THE COST PLUS MARK-U P OF IN THE OPEN MARKET OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCE. THE LEARNED AR SUBMITTED THAT THE OECD GUIDELINES READ WITH RULE 1 0B(1) OF THE IT RULES IF APPLIED TO THE FACTS OF THE ASSESSEES CASE THEN CPM SHALL HAVE TO BE ADOPTED AS A MOST APPROPRIATE METH OD IN VIEW OF AVAILABLE INFORMATION OF INTERNAL COMPARABLES IN TH E FORM OF SERVICES PROVIDED TO OTHER UNRELATED PARTIES. T HE LEARNED AR FURTHER CONTENDED THAT THE TPO WAS WHOLLY WRONG IN NOT ACCEPTING THE CPM AS THE MOST APPROPRIATE METHOD AND ADOPTING TNMM BY WRONGLY ASSUMING THAT IT HAS BEEN SELECTED BY THE A SSESSEE AS THE MOST APPROPRIATE METHOD. IN THIS CONTEXT, THE LEARN ED AR REFERRING TO THE TP STUDY REPORT SUBMITTED THAT THE ASSESSEE HAD ONLY OFFERED TMMM AS AN ALTERNATIVE TO CPM AS DATA REQU IRED FOR THE APPLICATION OF THE TNMM IS AVAILABLE FOR DETERMININ G THE ALP. IN SUPPORT OF HIS CONTENTION, THE LEARNED AR RELIED U PON THE DECISION OF ITAT, HYDERABAD BENCH IN CASE OF M/S ALUMECO IN DIA EXTRUSION LIMITED V/S. ACIT (ITA NO.1712/HYD/12 DATED 28-2-2 013) AND IN CASE OF ACIT V/S. MSS INDIA (32 SOT 132). ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 6 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT SINCE THE ASSESSEE ITSELF HAS ALTAERNATIVELY OFFERED TNMM AS A METHOD FOR COMPUTING THE ALP THER E SHOULD NOT ANY REASON FOR GRIEVANCE BY THE ASSESSEE. HE FURTHE R SUBMITTED THAT SINCE BILLING IS DONE ON MAN-HOUR BASIS ADOPTI ON OF TNMM IS MORE APPROPRIATE. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S IN THE LIGHT OF THE MATERIALS ON RECORD. AS CAN BE SEEN FROM THE FACTS AND MATERIALS ON RECORD THE ASSESSEE ITSELF IN TP S TUDY HAS OFFERED TNMM AS AN ALTERNATIVE METHOD. IT FURTHER T RANSPIRES FROM THE TP ORDER AS WELL AS THE ORDER OF DRP THAT THE A SSESSEE HAS NOT SERIOUSLY OBJECTED TO THE ADOPTION OF TNMM AS THE M OST APPROPRIATE METHOD THOUGH OF COURSE THE ASSESSEE HA S RAISED A GROUND BEFORE THE DRP ON THAT ISSUE. IT WOULD BE RE LEVANT TO NOTE THE OBSERVATION MADE BY THE DRP IN THIS REGARD. THOUGH, UNDER THE SECOND GROUND OF OBJECTION, THE ASSESSEE STATES THAT THE MOST APPROPRIATE METHOD ADOPTED BY IT, WAS COST PLUS METHOD(CPM), IT APPEAR S FROM PAGE NO.12 AND 13 OF TPOS ORDER THAT, IN THE ASSESSEES TP STUDY, THE METHOD OPTED FOR WAS TNMM (AS AN ALTERNATE METHOD APPARENTLY APPROVED BY THE ASSESSEE), WHICH WAS ALSO THE METHOD FOUND APPROPRIATE BY THE TPO. HENCE, THERE IS APPARENTLY NO DISPUTE AS REGARDS METHOD OF DETERMINATION OF ALP. THE DATA BASES SEARCHED BY THE DEPARTMENT AND THE T AX PAYER ARE THE SAME I.E., PROWESS/CAPITALINE. ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 7 THEREFORE CONSIDERING THE FACT THAT THE ASSESSEE IT SELF IN THE TP STUDY HAS OFFERED TNMM AS AN ALTERNATIVE METHOD FOR COMPUTING THE ALP, IT SHOULD NOT HAVE ANY GRIEVANCE IF THE TP O ADOPTS TNMM AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. THE DECISIONS RELIED UPON BY THE ASSESSEE IN THIS REGAR D WILL NOT APPLY TO THE FACTS OF THE PRESENT CASE AS THE ASSESSEE IT SELF IN THE TP STUDY HAS OFFERED TNMM AS AN ALTERNATIVE METHOD. W E ARE THEREFORE NOT INCLINED TO ENTERTAIN THE GROUNDS RAI SED BY THE ASSESSEE ON THIS ISSUE. 8. GROUND NO.4 RELATES TO SELECTION/REJECTION OF CERTAIN COMPARABLES BY THE TPO. OUT OF 13 COMPARABLE COMPANIES SELECTED BY TH E TPO THE ASSESSEE RAISED HIS OBJECTION WITH REGARD TO 8 COMPARABLES BY CONTENDING THAT THOUGH THE ASSESSEE HAS SELECTED COMPARABLES FROM IT ES SECTOR, THE TPO IGNORING THE VERTICALS OF THE ASSESSEE HAS CONSIDERED BO TH SOFTWARE DEVELOPMENT AS WELL AS ITES COMPANIES AND EVEN THE CO MPANIES IN THE TELECOM SECTOR. HEREINAFTER, WE WILL DEAL WITH EACH OF THE COMPANIES OBJECTED TO BY THE ASSESSEE. MAPLE E SOLUTION LIMITED 9. THE LEARNED AR OBJECTED TO THE AFORESAID COMPANY B EING TREATED AS COMPARABLE AS IT PROVIDES DESIGN SERVICE ON LINE AND O UT LINE MEDIA RANGING FROM INTERFACE TO LOGO DESIGN. THE SERVICE INCL UDE WEBSITE EVALUATION, INTRANET/EXTRANET, EMAIL LIST MANAGEMEN T CONTENT MANAGEMENT, SECURITY ETC. HENCE, THE COMPANIES IS FUNCTIONA LLY DISSIMILAR TO THE ASSESSEE. HE FURTHER SUBMITTED THAT THE SAID COMPA NY CANNOT ALSO BE TREATED AS COMPARABLE AS THE DIRECTORS OF THE SAID COM PANY WERE FOUND TO BE INVOLVED IN FRAUD, HENCE FINANCIAL RESULTS OF TH E COMPANY CANNOT BE ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 8 TRUSTED AS RELIABLE. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AR RELIED UPON THE DECISION OF ITAT, DELHI BENCH IN CASE OF ITO V /S. CRN SERVICES INDIA (P) LTD. (14 TAXMAN. COM.96 (DEL). 10. HAVING HEARD THE SUBMISSIONS OF THE PARTIES AND CON SIDERING THE MATERIAL ON RECORD, WE FIND THAT THE ITAT, DELHI BEN CH IN CASE OF ITO V/S. CRM SERVICES PVT. LIMITED (SUPRA) HELD THAT THE AFOR ESAID COMPANY CANNOT BE TREATED AS COMPARABLES WITH THE FOLLOWING OBSERVATIO N:- 17.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE ADMITTED FACTS IN RESPECT OF G ALAXY COMMERCIAL ARE THAT IT IS CARRYING ON THREE LINES OF BUSINESS AND SEGMENT PROFITABILITY IS NOT AVAILABLE. OBVIOUSLY, OVERALL PROFITABILITY OF THE COMPANY CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE AS IT WILL AMOU NT TO COMPARING INCOMPARABLE CASES. FURTHER, THE BUSINESS REPUTATIO N OF RASTOGI GROUP, OWNING MAPLE E. SOLUTIONS AND TRITON CORPORATION, I S UNDER SERIOUS INDICTMENT. THEY ARE ALSO CARRYING ON THE BUSINESS OF DATA PROCESSING SERVICES AND ITES SERVICES APART FORM BPO SERVICES. IN VIEW OF A QUESTION MARK ON THE REPUTATION OF THE OWNER, ALBEIT FOR EAR LIER YEARS, IT WOULD BE UNSAFE TO TAKE THEIR RESULTS FOR COMPARISON OF THE PROFITABILITY OF THE ASSESSEE. .. ACCORDINGLY, IT IS HELD THAT NONE OF THESE CASES CAN BE TAKEN TO BE COMPARABLE CASE. 11. THE ITAT HYDERABAD BENCH IN CASE OF CAPITAL IQ (IN DIA) PVT. LTD. ITANO.1961/HYD/2011 FOLLOWING THE AFORESAID DECISION OF DELHI BENCH HAS ALSO HELD THAT THE AFORESAID COMPANY CANNOT BE TREATED AS COMPARABLE. RESPECTFULLY FOLLOWING THE VIEW EXPRESSED BY CO-ORDINATE BENCHES AS AFORESAID, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES. DATAMATICS FINANCIAL SERVICES :- 12. OBJECTING TO THE AFORESAID COMPANY BEING TREATED A S COMPARABLE, THE LEARNED AR SUBMITTED THAT THE SAID COMPANY IS FUNCTI ONALLY DISSIMILAR TO THE ASSESSEE AS IT IS INTO MULTIPLE BUSINESSES HAVING PRESE NCE IN REGISTRAR AND SHARE TRANSFER AGENCY SERVICES, TRANSACTION P ROCESSING ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 9 SERVICES, ACCOUNTING OUTSOURCING SERVICES, CALL CENTRE SERVICES, FINANCIAL SERVICES, INTERNET RESEARCH SERVICES ETC. IT WAS SUBMITTED TH AT THE COMPANY HAS KPO AND BPO OPERATIONS CATERING INTO CUSTOMER S INTO FINANCIAL SERVICES AND HENCE IT IS NOT COMPARABLE TO THE ASSESSEE WHICH IS PURELY INTO BODY SHOPPING ACTIVITY. IN THIS CONTEXT, THE LEARNED AR REFERRED TO THE COMPANY PROFILE DOWNLOADED FROM THE COMPANYS WEBSITE. THE LEARNED AR SUBMITTED THAT SINCE THE COMPANY IS SUBS TANTIAL REVENUE IS FROM PRINTING SERVICES IT IS TO BE REJECTED. IN THIS CO NTEXT, HE RELIED UPON THE CASE OF VODAFONE INDIA SERVICES V/S. DCIT (36 TAXMA N.COM 127). 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE ITSELF HAS ADMITTED THAT NO COM PARABLE COMPANIES ARE AVAILABLE IN THE DATA BASES FOR BODY SHOPP ING VERTICAL AND HENCE THE ASSESSEE HAS SELECTED COMPARABLES FROM ITES SECTOR. THEREFORE, THE TPO HAVING SELECTED DATAMATICS BY APPLY ING THE SAME FILTERS WHICH WAS APPLIED BY THE ASSESSEE, THE ASSESSEE SHOULD NOT HAVE ANY GRIEVANCE ON SELECTION OF THE AFORESAID COMPANY. 14. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PE RUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE ASSESSEE FOR REJECTION OF THE AFORESAID COMPANY IS ON THE GROUND THAT IT IS INTO MULTIPLE BUSINESS ACTIVITY AND PROVIDES FINANCIAL SERVICES. FURTHERMORE, I T HAS BOTH KPO AND BPO OPERATIONS. ON A PERUSAL OF THE ORDER PASSED BY TH E DRP, WE FIND THAT THERE IS NO DISCUSSION OR FINDING WITH REGARD TO T HE ASSESSEES OBJECTION ON COMPARABLES SELECTED BY THE TPO. IN THE AFORESAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEES OBJECTIO N WITH REGARD TO THE FACT THAT THE SAID COMPANY IS ENGAGED IN BOTH THE KPO AND BPO SERVICES NEEDS TO BE LOOKED INTO. WE THEREFORE REM IT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE ISSUE OF COMPARABILITY OF THE AFORESAID COMPANY AFRESH AFTER CONSI DERING THE OBJECTIONS OF THE ASSESSEE. VISHAL INFORMATION TECHNOLOGIES LIMITED : ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 10 15. OBJECTING TO THE AFORESAID COMPANY HAVING BEEN SE LECTED AS COMPARABLE BY THE TPO, THE LEARNED AR SUBMITTED THAT APART FROM THE FACT THAT THE SAID COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS IN THE BUSINESS OF PROVIDING DESIGNING AND PRINTING SOLUTIONS, THE PRIMA RY REASON WHY THIS COMPANY SHOULD NOT BE SELECTED AS COMPARABLE IS IT HAS OU TSOURCED A CONSIDERABLE PART OF ITS BUSINESS TO THIRD PARTY VENDORS. THIS IS PROVED FROM THE FACT THAT ONLY 2% OF THE REVENUE IS SPENT TOW ARDS EMPLOYEE COST AND THERE IS HUGE VENDOR PAYMENT. IN SUPPORT OF SUCH CO NTENTION, THE LEANED AR RELIED ON THE DECISIONS OF HYDERABAD ITAT IN THE FOLLOWING CASES: I) JAVATA INDIA PVT. LTD. V/S. DCIT 35 TAXMAN. CO M 423) II) BRIGADE GLOBAL SERVICES PVT LTD. V/S. ITO (33 TAXMAN. COM 618) 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE TPO HAVING CONSIDERED ALL ASPECTS OF T HE MATTER AND SELECTED THE AFORESAID COMPANY AS A COMPARABLE, IT SHOULD NOT BE EXCLUDED FROM THE COMPARABILITY ANALYSIS. 17. WE HAVE HEARD THE CONTENTIONS OF THE PARTIES AND P ERUSED THE MATERIALS ON RECORD. ON A PERUSAL OF THE ORDER PASSED BY THE CO-ORDINATE BENCH IN THE CASE OF JAVATA INDIA PVT. LTD. V/S. DCIT (SUPRA), IT IS TO BE NOTED THAT THE AFORESAID COMPANY HAS BEEN EXCLUDED AS A COMPARABLE BY HOLDING AS UNDER: 16. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD.,(SUPRA) THE CO-ORDINATE BENCH AFTER CONSIDER ING THE OBJECTIONS OF THE ASSESSEE IN RESPECT OF THE AFORESAID COMPANY HE LD IN THE FOLLOWING MANNER:- 17. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNE D AUTHORISED REPRESENTATIVE FOR THE ASSESSEE, WE FIND THAT THE DRP, IN THE PROCEEDINGS FOR THE ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 11 ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE, AFTER T AKING NOTE OF THE COMPOSITION OF THE VENDOR PAYMENTS OF CORAL HUB FOR THE LAST THREE YE ARS, AND THE FACT THAT IT HAS ALSO COMMENCED A NEW LINE OF BUSINESS OF PRINTING ON DEMA ND(POD), WHEREIN IT PRINTS UPON CLIENTS REQUEST, CONCLUDED AS FOLLOWS- 18.4. IN VIEW OF THIS MAJOR DIFFERENCE IN FUNCTI ONALITY AND THE BUSINESS MODEL, THIS PANEL IS OF THE VIEW THAT CORAL HUB IS NOT A SUI TABLE COMPARABLE TO THE TAXPAYER AND HENCE NEEDS TO BE DROPPED FORM THE FINAL L IST OF COMPARABLES. IN CASE OF ACIT V/S. M/S. MAERSK GLOBAL SERVICE CEN TRE (SUPRA), THE ITAT MUMBAI BENCH HAS ALSO DIRECTED FOR EXCLUSION OF THE AFORESAID COMPANY, BY OBSERVING IN THE FOLLOWING MANNER- INSOFAR AS THE CASES OF TULSYAN TECHNOLOGIES LIMITED AN D VISHAL INFORMATION TECHNOLOGIES LIMITED ARE CONCERNED, IT IS NOTICED FR OM THEIR ANNUAL ACCOUNTS THAT THESE COMPANIES OUTSOURCED A CONSIDERABLE PORTION OF THEIR BUSINESS. AS THE ASSESSEE CARRIED OUT ENTIRE OPERATIONS BY ITSELF, IN O UR CONSIDERED OPINION, THESE TWO CASES WERE RIGHTLY EXCLUDED. IN VIEW OF THE OBSERVATIONS MADE BY THE DRP AS WELL AS THE DECISION OF THE ITAT MUMBAI IN THE CASE OF MAERSK GLOBAL SERVICE CENTRE, (SUPRA), W E ACCEPT THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. 17. AS COULD BE SEEN FROM THE FINDINGS OF THE CO-O RDINATE BENCH, THE AFORESAID COMPANY UNLIKE THE ASSESSEE HAS OUTSOURCE D CONSIDERABLE PORTION OF ITS BUSINESS TO THIRD PARTY VENDOR. HEN CE, IT CANNOT BE CONSIDERED AS A COMPARABLE. THAT BESIDES THE DRP IN ASSESSEES OWN CASE FOR ASST. YEAR 2008-09 HAS HELD THAT THIS COMPANY C ANNOT BE TREATED AS A COMPARABLE. THEREFORE, CONSIDERING THE AFORESAID FACT, WE ARE OF THE VIEW THAT M/S VISHAL INFORMATION TECHNOLOGY LTD., C ANNOT BE TAKEN AS A COMPARABLE AND DIRECT FOR EXCLUDING THE SAME FROM T HE LIST OF COMPARABLES. THE SAME VIEW HAS ALSO BEEN EXPRESSED IN THE CASE OF BRIG ADE GLOBAL SERVICES PVT LTD. V/S. ITO (SUPRA). IN AFORESAID VIEW OF THE MATTER, WE DIRECT THE TPO TO VERIFY WHETHER SIMILAR SITUATION EXI STS IN THE IMPUGNED ASSESSMENT YEAR ALSO. IF THE EMPLOYEE COST OF THE AFORESA ID COMPARABLE IS ALSO IN SIMILAR LOW RANGE, THEN IT HAS TO BE ASSUMED THAT THE SAID COMPANY HAS OUTSOURCED ITS BUSINESS ACTIVITIES TO THIRD PAR TY VENDOR, HENCE CANNOT BE TREATED AS COMPARABLE TO THE ASSESSEE. ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 12 ASIT C MEHTA FINANCIAL SERVICES LIMITED 18. THE LEARNED AR SOUGHT THE EXCLUSION OF THE AFORESA ID COMPANY BY CONTENDING THAT THE COMPANY IS FUNCTIONALLY DISSIMILAR A S IT IS INTO THE BUSINESS OF PROVIDING FINANCIAL SERVICES WITH SIGNIFICANT P RESENCE IN PORTFOLIO MANAGEMENT SERVICES, INVESTMENT ACTIVITIES, PR OJECT MANAGEMENT SERVICES INCLUDING FINANCIAL BPO SERVICES. IT WAS FURTHER SUBMITTED THAT THE EMPLOYEE COST OF THE COMPANY IS ALSO V ERY LOW COMPARED TO ITS REVENUE. HENCE THIS COMPANY ALSO CANNOT B E TREATED AS COMPARABLE. INS SUPPORT OF SUCH CONTENTION, TAME LEARNED AR RELIED UPON THE DECISION OF ITAT, HYDERABAD BENCH IN THE CASE OF JAVA TA INDIA PVT. LTD. V/S. DCIT (SUPRA). 19. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. 20. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES. THE A SSESSEE HAS SOUGHT EXCLUSION OF THE AFORESAID COMPANY PRIMARILY ON T HE GROUND OF LOW EMPLOYEE COST. IN CASE OF JAVATA INDIA PVT. LTD. V/S . DCIT (SUPRA), THE CO-ORDINATE BENCH WHILE CONSIDERING THE ASSESSEES OBJECTION WITH REGARD TO THE AFORESAID COMPANY HAS HELD UNDER:- 20. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIAL ON RECORD. FROM THE INFORMATIO N OBTAINED U/S 133(6) OF THE ACT BY THE TPO, WHICH IS AT PAGE 381 OF THE PAPER BOOK, IT IS SEEN THAT THE COMPANY HAS A EMPLOYEE COST OF 24.78% COMPARED TO ASSESSEES 44%. THAT BESIDES IT IS ALSO A FACT THAT THE DRP IN ASSESSEES OWN CASE FOR ASST. YEAR 2008-09 H AS EXCLUDED THIS COMPANY WHICH HAS NOT BEEN CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE. THEREFORE, CONSIDERIN G THE TOTALITY OF FACTS AND THE CIRCUMSTANCES, WE DIRECT THE EXCLUSIO N OF THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES. ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 13 21. IN VIEW OF THE AFORESAID FINDING OF THE CO-ORDI NATE BENCH WE DIRECT THE ASSESSING OFFICER/TPO TO VERIFY THE EMPLOYEE COST OF THE AFORESAID COMPANY FOR THE IMPUGNED ASSESSMENT YEAR. IF THE EMPLOY EE COST OF THE AFORESAID COMPANY IS FOUND TO BE SUBSTANTIALLY LOW COMP ARED TO THE ASSESSEE THEN THE AFORESAID COMPANY CANNOT BE TREATED AS COMPARABLE. GOLDSTONE INFRATEC LIMITED 22. OBJECTING TO THE AFORESAID COMPANY, THE LEARNED AR SUBMITTED THAT THIS COMPANY CANNOT AT ALL BE TREATED AS COMPARABLE WITH THE ASSESSEE AS IT IS ENGAGED IN DIVERSIFIED BUSINESS ACTIVITIES OF MANUFA CTURING, TELECOM, DESIGNING SOLUTIONS. IT WAS SUBMITTED THAT THE COMPANY I S AN INTEGRATED PLAYER ENGAGED IN THE MANUFACTURE OF COMPOSITE INSULAT ORS AND TELECOM CABLE JOINING VITS AND MULTI MEDIA DESIGNING SERVICES WI TH INBOUND AND OUTBOUND DESIGN SERVICES, WHEREAS THE ASSESSEE IS PURELY A BO DY SHOPPING COMPANY. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 24. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES. ON A PERUSAL OF THE BUSINESS PROFILE OF THE AFORESAID COMPANY, A COPY OF WHICH AS DOWNLOADED FROM THE COMPANYS WEBSITE WHICH IS PLACED AT 20 OF THE PAPER BOOK WOULD REVEAL THAT THE COMPANY IS INTO MANUFACTUR ING ACTIVITY. IT ALSO OWNS R & D FACILITY. THEREFORE, THE ASSESSEES CONTEN TION THAT THE AFORESAID COMPANY IS FUNCTIONALLY DISSIMILAR TO IT CARRI ES SOME FORCE. IT IS NOT KNOWN WHETHER SEGMENTAL DETAILS WITH REGARD TO IT ES OF THE AFORESAID COMPANY ARE AVAILABLE IN PUBLIC DOMAIN OR NOT. A S IT APPEARS THE DRP HAS NOT PROPERLY CONSIDERED THE ASSESSEES OBJECTION WITH R EGARD TO THE AFORESAID COMPANY. IN AFORESAID VIEW OF THE MATTER, W E REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER/TPO WHO SHALL CON SIDER THE ISSUE AS TO WHETHER THE AFORESAID COMPANY CAN AT ALL BE TREA TED AS COMPARABLE ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 14 TO THE ASSESSEE AFTER TAKING INTO ACCOUNT THE OBJECTIONS OF THE ASSESSEE AND ALL OTHER MATERIALS AVAILABLE ON RECORD. SPANCO LIMITED 25. OBJECTING TO THE AFORESAID COMPANY, THE LEARNED AR SUBMITTED THAT THE COMPANY CANNOT BE TREATED AS COMPARABLE TO THE ASSESSE E AS IT IS A LEADING TELECOM AND TECHNOLOGY INFRASTRUCTURE COMPANY W ITH PRESENCE IN TELECOM SYSTEMS INTEGRATION. IT PROVIDES TELECOM AND TECH NOLOGY INFRASTRUCTURE SERVICES TO MULTI NATIONAL COMPANY, PUBLI C SECTOR UNITS AND DEFENSE SECTOR. IN THIS CONTEXT, THE LEARNED AR REFER RED TO THE BUSINESS PROFILE OF THE COMPANY AT PAGE-22 OF THE WRITTEN SUBM ISSIONS. HE THEREFORE SUBMITTED THAT THE COMPANY CANNOT BE TREATED AS COMPARABLE TO THE ASSESSEE WHICH IS PURELY BODY SHOPPING COMPANY AND THE RANGE OF ACTIVITIES AND PROCESS EMPLOYED ARE DIFFERENT. 26. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, DEFENDED THE SELECTION OF THE AFORESAID COMPANY AS COMPAR ABLE. 27. ON A PERUSAL OF THE BUSINESS PROFILE OF THE COMPAN Y, IT APPEARS THAT THE AFORESAID COMPANY PROVIDES SERVICES TO COMPLEX TECHNOLO GY, INFRASTRUCTURE PROJECTS, ACROSS GOVERNMENT, POWER AND TE LECOM SERVICE PROVIDER. IT ALSO PROVIDES BPO SERVICES BOTH INSIDE AND O UTSIDE THE COUNTRY. AS PER THE BUSINESS PROFILE, THE COMPANYS TECHNO LOGY SHOWS INFRASTRUCTURE DIVISION, HIGH QUALITY EFFECTIVE, SCALABL E TECHNOLOGY INFRA SOLUTIONS ETC. THEREFORE CONSIDERING THE SPECIALIZED ACTI VITIES OF THE AFORESAID COMPANY, THE ASSESSEES CONTENTION OF FUNCTIONAL DISSIMILARITY HAVE TO BE CONSIDERED PROPERLY AND OBJECTIVELY WHICH IN OUR VIEW HAS NOT BEEN DONE EITHER BY THE TPO OR BY THE DRP. IN AFOR ESAID VIEW OF THE MATTER, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER /TPO FOR DECIDING AFRESH AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE AND AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 15 R. SYSTEMS INTERNATIONAL LIMITED 28. THE LEARNED AR SUBMITTED THAT THE AFORESAID COMPAN Y CANNOT BE TREATED AS A COMPARABLE AS IT IS PURELY A SOFTWARE DEVEL OPMENT COMPANY CUSTOMIZING THE SOFTWARE PROJECTS AND SOLUTIONS. HE FURTH ER SUBMITTED THAT THE AFORESAID COMPANY CANNOT ALSO BE TREATED AS COM PARABLE AS IT HAS A DIFFERENT FINANCIAL YEAR ENDING COMPARED TO THE ASSESSE E. IN THIS CONTEXT, HE RELIED UPON A DECISION OF THE ITAT, MUMBAI BENCH IN CASE OF ACIT V/S. HAPAG LLYODS SERVICES (2013) (34 TAXMAN.COM 241). 29. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE TPO AND DRP. 30. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. IT IS THE CONTENTION OF THE ASSESSEE THAT THE AFORESAID COMPANY IS NOT ONLY A PRODUCT DEVELOPMENT CO MPANY BUT ALSO HAS A DIFFERENT FINANCIAL YEAR ENDING THEN THAT OF TH E ASSESSEE. HENCE, IT CANNOT BE CONSIDERED AS COMPARABLE AS FIGURES OF DIFFERENT FINANCIAL YEARS ENDING ARE DISTORTED. ON A PERUSAL OF THE ORDER PASSED BY THE ITAT, MUMBAI BENCH IN CASE OF ACIT V/S. HAPAG LLYODS SERVICES (SU PRA), IT IS TO BE NOTED THAT THE MUMBAI BENCH OF THE TRIBUNAL FOLLO WING ANOTHER ORDER OF THE SAME BENCH IN CASE OF SANDSTONE CAPITAL ADVISERS P. LT D. V/S. ACIT (32 TAXMAN, COM 216) EXCLUDED THE AFORESAID COMPANY FRO M THE LIST OF COMPARABLES. IN VIEW OF THE AFORESAID ORDER OF THE IT AT, MUMBAI BENCH (SUPRA), WE DIRECT ASSESSING OFFICER/ TPO TO EXAMINE WHETH ER THE AFORESAID COMPANY HAS A DIFFERENT FINANCIAL YEAR ENDING . IF IT IS FOUND TO BE SO THEN THE AFORESAID COMPANY CANNOT BE TREATED AS A COMPARABLE. FLEXTRONICS SOFTWARE SYSTEMS LIMITED 31. THE LEARNED AR OBJECTING TO THE AFORESAID COMPANY BEING TREATED AS COMPARABLE, SUBMITTED THAT THE COMPANY IS IN THE BUSINE SS OF BOTH SOFTWARE SOLUTIONS AND PRODUCT DEVELOPMENT. THE COMPANY S PRODUCT ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 16 PORTFOLIO INCLUDES COMMUNICATION PRODUCT WITH CUTTING A GE TECHNOLOGY IN THE AREAS OF VOICE OVER PACKAGE, 3G/UMTC, IP MULTIMEDI A SUBSISTENCE , SWITCHING, ROUTING, SECURITY, HANDSETS AND BILLING AND OS S. IT ALSO PROVIDES TECHNOLOGY SERVICES INCLUDING IT MANAGEMENT CONSULTING A ND INTERNET INTEGRATED SERVICES. HENCE, THE ASSESSEES ACTIVITY BEING PU RELY BODY SHOPPING, THIS COMPANY CANNOT BE TREATED AS A COMPARABLE. 32. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 33. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. IT IS THE CONTENTION OF THE ASSESSEE THAT THE AFORESAID COMPANY IS INTO PRODUCT DEVELOPMENT. A PERUSA L OF THE ORDER PASSED BY THE TPO REVEALS THAT THOUGH THE TPO CONSIDERE D THE AFORESAID COMPANY BEING ITES BUT HE ALSO ADMITTED THE FACT THE ANNUAL REPORT OF THE COMPANY DID NOT CONTAIN SEGMENTAL INFORMATION. ON LY ON THE BASIS OF INFORMATION OBTAINED U/S 133 (6) OF THE ACT THE AFOR ESAID COMPANY WAS TREATED AS COMPARABLE. WHETHER THE INFORMATION OBTAI NED U/S 133(6) OF THE ACT WILL BE SUFFICIENT ENOUGH TO CONSIDER THE AFORESA ID COMPANY AS A COMPARABLE COULD NOT BE GONE INTO BY US IN ABSENCE OF RE LEVANT DETAILS. THE DRPS ORDER IS ALSO TOTALLY SILENT IN THIS REGARD. IN AFORESAID VIEW OF THE MATTER, WE CONSIDER IT APPROPRIATE TO REMIT THIS I SSUE TO THE FILE OF THE ASSESSING OFFICER/ TPO FOR CONSIDERING AFRESH AFTER AFFORDI NG A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 34. THE LEARNED AR ALSO OBJECTED TO THE REJECTION OF O NE OF THE COMPANIES SELECTED BY THE ASSESSEE I.E., B2K CORP PVT. LTD . THE LEARNED AR SUBMITTED THAT THE TPO HAS REJECTED THE AFORESAID COM PANY ON THE GROUND THAT IT IS A PERSISTENT LOSS MAKING COMPANY AND F AILS THE RPT FILTER. IN THIS CONTEXT, THE LEARNED AR HAS SUBMITTED THAT A PE RSISTENT LOSS MAKING COMPANY IS ONE WHICH RECORDS LOSSES CONTINUOUSLY FOR FOUR T O FIVE YEARS. THIS IS SO TO COVER BUSINESS CYCLE PERIOD OF ANY INDUSTRY. HOWEVER, IF A ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 17 COMPANY MAKES LOSSES JUST IN ONE OR TWO YEARS DUE TO SOME UNFORESEEN EVENTS, THE SAME COMPANY CANNOT BE REJECTED AS PERSISTENT LOSS MAKING COMPANY. THE LEARNED AR SUBMITTED THAT THE AFORESAID COMPANY WAS DURING THE START-UP PERIOD, HENCE IT CANNOT BE CONSIDERE D TO BE A PERSISTENT LOSS MAKING COMPANY. HE FURTHER SUBMITTED THAT NO INFORMATION ABOUT RELATED PARTY TRANSACTION IS AVAILABLE ON THE DA TA BASES, HENCE, APPLICATION OF RPT FILTER IS ALSO UNACCEPTABLE. THE LEA RNED AR SUBMITTED THAT SINCE THE AFORESAID COMPANY SATISFIES ALL THE FILTERS, IT IS A COMPARABLE COMPANY TO THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, T HE LEARNED AR RELIED UPON A DECISION OF ITAT, DELHI BENCH IN CASE OF MENTOR GRAPHICS V/S. DCIT (18 SOT 76). 35. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE VIEW OF THE TPO IN REJECTING THE AFORESA ID COMPANY AS A PERSISTENT LOSS MAKING COMPANY. 36. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PER USED THE MATERIAL ON RECORD. IT IS THE CONTENTION OF THE ASSESSE E THAT THE AFORESAID COMPANY WAS DURING ITS START-UP PERIOD, HENCE IS EXPECTE D TO MAKE LOSS. HOWEVER FOR THAT REASON, IT CANNOT BE TREATED AS A PERSI STENT LOSS MAKING COMPANY. ON A PERUSAL OF THE ORDER PASSED BY THE TPO , IT IS TO BE NOTED THAT THE TPO ALSO ACCEPTS THE FACT THAT THE AFORESAID COMP ANY IS A START-UP COMPANY AND IT HAS STARTED ITS BUSINESS ONLY TWO YEARS BA CK. THEREFORE, TO TREAT IT AS A PERSISTENT LOSS MAKING COMPANY, ITS FI NANCIAL RESULTS FOR THE SUBSEQUENT YEARS HAS TO BE LOOKED INTO. THIS FACT HAS NO T BEEN CONSIDERED EITHER BY THE TPO OR BY THE DRP. IN THIS V IEW OF THE MATTER, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER /T PO FOR DECIDING AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE. 37. IN GROUND NO.6, THE ASSESSEE HAS RAISED THE ISSUE THA T THERE IS NO REQUIREMENT FOR TRANSFER PRICING ADJUSTMENT AS THE ASSESSEE IS CLAIMING ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 18 EXEMPTION U/S 10B OF THE ACT, HENCE THERE WOULD BE NO MOTIVATION FOR SHIFTING THE PROFIT. 38. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATE RIALS ON RECORD. WE HAVE ALSO EXAMINED THE DECISION IN CASE OF CO TTON NATURALS (I) (P) LTD. V/S. DCIT (32 TAXMANN.COM.219) RELIED UPON BY THE ASSESSEE. IT IS TO BE NOTED THAT SIMILAR ISSUE CAME UP FOR CONSIDERATI ON BEFORE THE ITAT, HYDERABAD BENCH IN CASE OF DCIT V/S. HELLOSOFT INDIA PVT . LTD. (ITA 645/HYD/09) DATED 15-1-2013, THE CO-ORDINATE BENCH HEL D AS UNDER:- OUR FINDING ON THE ISSUE IS THOUGH IT IS A FAC T THAT ASSESSEES INCOME IS EXEMPT U/S 10A OF THE ACT BUT THAT DOES NOT NECESSARILY MEAN THAT THE ASSESSING OFFICER HAS TO PROVE THE SHIFTING OF PROFITS BY THE ASSESSEE TO ITS AE B EFORE APPLYING TRANSFER PRICING PROVISION. THE HONBLE P & H HIGH COURT IN THE CASE OF COCA COLA INDIA INC V/S. AC IT (309 ITR PAGE 14) WHILE CONSIDERING SOMEWHAT SIMILAR ISSUE H ELD IN THE FOLLOWING MANNER:- WE DO NOT FIND ANY AMBIGUITY OR ABSURD CONSEQUENCE OF APPLICATION OF CHAPTER-X TO PERSONS WHO ARE SUBJEC T TO JURISDICTION OF TAXING AUTHORITIES IN INDIA NOR WE FIND ANY STAT UTORY REQUIREMENT OF ESTABLISHING THAT THERE IS TRANSFER OF PROFIT OU TSIDE INDIA OR THAT THERE IS EVASION OF TAX. ONLY CONDITION PRECEDENT FOR INVOKING PROVISIONS OF CHAPTER X IS THAT THERE SHOULD BE INC OME ARISING FROM INTERNATIONAL TRANSACTION AN D SUCH INCOME IS TO B E COMPUTED HAVING REGARD TO ARMS LENGTH PRICE. INTERNATIONAL TRANSACTION AS DEFINED U/S 92B OF THE ACT, AS ALREADY OBSERVED, CE RTAINLY STANDS ON A DIFFERENT FOOTING THAN ANY OTHER TRANSACTION. ARMS LENGTH PRICE IS NOTHING BUT A FAIR PRICE WHICH WOULD HAVE BEEN NORMAL PRICE. THERE IS ALWAYS A POSSIBILITY OF TRANSACTIO N BETWEEN A NON- RESIDENT AND ITS ASSOCIATES BEING UNDER VALUED AND HAVING REGARD TO SUCH TENDENCY, A PROVISION THAT INCOME ARISING O UT OF THE SAID TRANSACTION COULD BE COMPUTED HAVING REGARD TO ARMS LENGTH PRICE, ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 19 WILL NOT BE OPENED TO QUESTION AND IS WITHIN THE LE GISLATIVE COMPETENCE TO EFFECTUATE THE CHARGE OF TAXING REAL INCOME IN INDIA. THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE BENCH IN CASE OF M/S SAP LABS INDIA PVT. LIMITED V/S. ACIT (ITA NO.398/BANG. /2008) DATED 30 TH AUGUST, 2010 WHILE CONSIDERING IDENTICAL ISSUE HELD IN T HE FOLLOWING MANNER:- THE ARGUMENT OF THE ASSESSEE WITH REFERENCE TO SEC. 10A STATUS ALSO NEEDS A MENTION. IT IS THE CASE OF THE ASSESS EE THAT IT IS ENJOYING SEC. 10A BENEFIT AND NO TAX IS PAYABLE ON EXPORT INCOME, WHICH MAKES THE INDIAN TAX RATE MORE ATTRACTIVE THA N GERMAN TAX RATE AND THEREFORE, THERE COULD BE NO MOTIVE TO UND ERSTATE ASSESSEES INCOME. THIS ARGUMENT COULD BE A GOOD LOGIC, BUT ONLY FOR THOSE ASSESSMENT YEARS COVERED BY SEC. 10A BENE FIT. ONCE THE BENEFIT IS EXHAUSTED, THE ASSESSEE WOULD BE LIABLE FOR TAXATION IN WHICH CASE, THE GERMAN TAX RATE MAY BE MORE ATTRACT IVE. IF THE PRICING FOR THE EXEMPTED YEARS IS ACCEPTED WITHOUT ANALYSIS THERE IS EVERY CHANCE THAT THE ASSESSING AUTHORITY MIGHT BE ESTOPPED, ON THE DOCTRINE OF CONSISTENCY, FROM EXAMINING THE PRI CING FOR THE SUBSEQUENT NON-EXEMPTED YEARS. THIS IS QUITE UNCAL LED FOR. IN VIEW OF THE AFORESAID JUDICIAL PRONOUNCEMENTS, T HE CONTENTION RAISED BY THE ASSESSEE IS NOT ACCEPTABLE. ACCORDINGLY, T HE GROUND RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION IS DISMISSED. RESPECTFULLY FOLLOWING AFORESAID DECISION OF THE ITAT, HY DERABAD BENCH, WHICH IS BINDING ON US, WE REJECT THE CONTENTIONS OF THE ASSESSEE AND DISMISS THE GROUND. 39 . THE NEXT ISSUE AS RAISED IN GROUND NO.7 RELATES TO CAL CULATION OF ALP ON THE TOTAL TURNOVER OF RS.7,38,43,652 WHICH INCLUDES NON AE TURNOVER OF RS.1,03,26,763/-. ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 20 40. HAVING HEARD THE SUBMISSIONS OF THE PARTIES, WE ARE OF THE VIEW THAT TRANSFER PRICING PROVISION APPLY TO THE DETERMINATION OF ALP IN RESPECT OF CONTROLLED TRANSACTIONS BETWEEN RELATED PARTIES. THER EFORE, UN-CONTROLLED TRANSACTIONS WITH THIRD PARTIES WHO HAVE NO RELATIONSHIP WITH THE ASSESSEE CANNOT BE CONSIDERED FOR TRANSFER PRICING ADJUSTMENT. WE THEREFORE DIRECT THE ASSESSING OFFICER /TPO TO VERIFY THIS ASPECT AND EXCLU DE THE TURNOVER RELATING TO NON AE FOR DETERMINING ALP. 41. IN GROUND NO.8, THE ASSESSEE HAS RAISED THE ISSUE OF EXCLUSION OF VISA PROCESSING CHARGES AND RELOCATION CHARGES FROM EXPORT TURNOVER WITHOUT DEDUCTING THE SAME FROM THE TOTAL TURNOVER W HILE COMPUTING DEDUCTION U/S 10B OF THE ACT. 42. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES ON THI S ISSUE. IT IS CONTENTION OF THE LEARNED AR THAT THESE ARE ONLY REIM BURSEMENTS AND HENCE SHOULD NOT HAVE BEEN EXCLUDED FROM THE EXPORT T URNOVER. ALTERNATIVELY, IT WAS SUBMITTED BY THE LEARNED AR TH AT IF AT ALL IT WAS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO HAVE BEEN EXCLUDED FROM THE TOTAL TURNOVER. WE ACCEPT THE ALTAE RNATIVAE CONTENTION OF THE LEARNED AR. WHEN THE ASSESSING OFFICER EXCLUDE T HE VISA CHARGES AND RELOCATION CHARGES BY TREATING IT AS EXPENSES COMING WITHIN EXZPLANATION-2 (III) OF SECTION 10B THE SAME ALSO SHOULD HAVE BEEN EXCLUDED FROM THE TOTAL TURNOVER FOR COMPUTING DEDUC TION U/S 10B OF THE ACT. IN FACT, THE DRP ALSO ACCEPTS SUCH FACT BUT HAS DEN IED RELIEF TO THE ASSESSEE SOLELY ON THE GROUND THAT THE DEPARTMENT HAS NO RIGHT OF APPEAL AGAINST THE ORDER OF THE DRP. THEREFORE AFTER CONSID ERING THE TOTALITY OF FACTS AND THE CIRCUMSTANCES OF THE CASE, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE VISA CHARGES AND RELOCATION CHARGES FROM THE EXP ORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 1 0B OF THE ACT. 43. THE ASSESSING OFFICER/TPO IS DIRECTED TO RE-COMPUTE THE ALP AND COMPLETE THE ASSESSMENT AFRESH IN TERMS WITH THE DIRECTIONS GIVEN HEREINABOVE. ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 21 44. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE COURT ON 10-01-2014. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 10 TH JANUARY, 2014. JMR* COPY FORWARDED TO:- 1. C/O PRASAD & PRASAD, CHARTERED ACCOUNTANTS, 301, MJ TOWE RS, ROAD NO.12, BANJARA HILLOS, HYDERABAD. 2. ACIT, CIR-3(1), HYDERABAD. 3. DISPUTE RESOLUTION PANEL, I T DEPARTMENT, HYDERABAD. 4. THE DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. ITA NO.1456/HYD/10 M/S. SAVEN TECHNOLOGIES LTD., HYD. 22