AcIT, Circle - 14(1), Kolkata , Kolkata V. M/s. Acclaris Business Solutions (P) Ltd., Kolkata

ITA 1457/KOL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0495 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 16-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJOY PAUL
• Assessee Lawyers: J P KHAITAN
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI S.S. GODARA, JM & SHRI M.BAL AGANESH, AM ] I.T.A NO. 1457/KOL/20 17 ASSESSMENT YEAR : 2008-0 9 ACIT, CIRCLE-14(1), KOLKATA -VS- M/S ACCLARIS BU SINESS SOLUTIONS (P) LTD. [PAN: AAECA 2366 E] (APPELLANT) (RESPOND ENT) FOR THE APPELLANT : SHRI SANJOY PAUL, ADDL. CIT SR. DR FOR THE RESPONDENT : SHRI J.P. KHAITAN, AR DATE OF HEARING : 06.09.2018 DATE OF PRONOUNCEMENT : 14.09.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-22, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO. 171/CIT(A)- 22/2008-09/14-15/KOL DATED 03.03.2017 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE- 4, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 09.02.2012 FOR THE ASSESSM ENT YEAR 2008-09. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION OF RS 1,36,61,522/- MADE T OWARDS ADJUSTMENT TO ARMS LENGTH PRICE (IN SHORT ALP) IN THE FACTS AND CIRCUMSTANCES OF THE CASE 2 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 2 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE IS A DOMESTIC COMPANY INCORPORATED ON 6.6.2003 AND IS A 98% SUBSIDIARY OF ACCLARIS INC . THE RESIDUAL 2% WAS HELD BY TWO RESIDENT INDIANS. THE ASSESSEE PROVIDES BUSINESS PR OCESS OUTSOURCING ( IN SHORT BPO) SERVICES INCLUDING ADJUDICATION OF FINANCIAL SERVIC E AUTHORITY CLAIMS, MEDICAL CLAIMS AND TRAVEL AND EXPENSE CLAIMS, E-RECRUITMENT SERVIC ES, FINANCIAL ACCOUNTING SERVICES (I.E ACCOUNTS PAYABLE ADMINISTRATION, RECONCILIATION OF COLLECTIONS OF CREDIT CARD AND OTHERWISE ETC) , TAX PROCESSING SERVICES, MORTGAGIN G SERVICES AND ROUTINE BACK OFFICE SERVICES WHICH COULD BE LIKE INDEXING AND ENROLLMEN T FOR CLIENT. THE ASSESSEE COMPANY BILLS ACCLARIS INC. (ASSOCIATED ENTERPRISE AE OF THE ASSESSEE) ON A MAN MONTH RATE FOR THE NUMBER OF EMPLOYEES EMPLOYED AS ON THE LAST DAY OF THE MONTH. ON THE OTHER HAND, THE AE UNDERTAKES THE ENTIRE MARKETING AND BUSINESS DEVELOPMENT ACTIVITY TO GENERATE BUSINESS, NEGOTIATES AND ENTERS INTO CONTRACTS WITH CUSTOMERS, BEARS THE COSTS OF THE ENTIRE PROJECT TRANSITION PHASE, RENDERS THE REQUIS ITE TRAINING TO ITS EMPLOYEES OR EMPLOYEES OF ASSESEE IN RELATION TO THE PROJECT AND PERFORMS THE FUNCTION OF SEEING THE COMPLETE PROJECT THROUGH. THE ASSESSEE FOR THE ASST YEAR 2008-09 FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS 56,828/- AFTER CLAIMING DEDUCTION U/S 10A AND 10B OF THE ACT IN RESPECT OF ITS VARIOUS UNITS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PROVIDED BPO SERVICES TO ITS PARENT , ACCL ARIS INC. WHICH RESULTED IN INTERNATIONAL TRANSACTIONS OF AROUND RS 14,36,38,83 6/- WITH ITS AE. APART FROM THIS, THE ASSESSEE ALSO HAD OTHER INTERNATIONAL TRANSACTIONS WITH ITS AE IN RESPECT OF RECEIPT OF INTEREST FREE LOAN OF RS 6,77,897/- AND RECOVERY OF EXPENSES OF RS 60,460/-. THE LAST TWO ITEMS OF INTERNATIONAL TRANSACTIONS ARE NOT IN DISPUTE IN THE PRESENT APPEAL AND HENCE NO DISCUSSION IS MADE REGARDING THE SAME. THE ASSES SEE ADOPTED THE BOOK VALUE OF THE INTERNATIONAL TRANSACTION IN RESPECT OF SERVICES RE NDERED TO ITS AE AS THE ALP IN ITS TRANSFER PRICING ( IN SHORT TP ) STUDY REPORT. THE KEY FINANCIALS OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION ARE AS UND ER:- TURNOVER RS 14,49,80,362/- PROFIT BEFORE TAX RS 2,06,61,729/- NET FIXED ASSETS RS 3,05,54,563/- 3 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 3 3.1. THE FUNCTIONAL , ASSETS AND RISK PROFILE OF TH E ASSESSEE AND AE ARE AS UNDER:- THE FUNCTIONS PERFORMED BY THE ENTITIES ARE SUMMAR IZED BELOW: (B) ASSETS THE APPELLANT DOES NOT OWN ANY SIGNIFICANT INTANGIB LE AND DOES NOT UNDERTAKEN ANY SIGNIFICANT RESEARCH AND DEVELOPMENT ON ITS ACCOUNT THAT LEADS TO THE DEVELOPMENT OF NON-ROUTINE INTANGIBLES. IT LEVERAGES ON THE PROCES S, KNOW-HOW, TECHNICAL DATA SOFTWARE, OPERATING/QUALITY STANDARDS ETC. DEVELOPED/OWNED BY ACCLARIS INC. FOR UNDERTAKING THE ABOVE FUNCTIONS. (C) RISKS THE RISKS ASSUMED BY THE APPELLANT AND AE IN COURSE OF PERFORMING THE ABOVE FUNCTIONS ARE SUMMARIZED BELOW. SINCE, THE APPELLANT IS OPERA TING UNDER THE CAPTIVE ARRANGEMENT AND ENTIRELY UNDER THE SUPPORT AND GUIDANCE OF THE AE, IT IS ABSOLVED OF MOST OF THE BUSINESS AND OPERATIONAL RISKS ARISING OUT OF THE O PERATIONS. AS IT CAN BE SEEN FROM ABOVE THAT THE APPELLANT DOE S NOT ASSUME ANY SIGNIFICANT RISK FROM ITS BUSINESS OPERATION. 4 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 4 (D) CHARACTERIZATION IN LIGHT OF THE ABOVE, THE APPELLANT BEING A CAPTIV E SERVICE PROVIDER REMUNERATED ON A COST PLUS MODEL DOES NOT BEAR RISKS LIKE R&D RISK, CREDIT RISK, PRICE RISK, CAPACITY UTILIZATION RISK AND FOREX RISK WHEREAS ACCLARIS IN C, BEING AN ENTREPRENEUR IS EXPOSED TO ALL RISKS ASSOCIATED WITH ITS BUSINESS OPERATIONS. CONSIDERING THE SAME, THE APPELLANT WAS CHARACTERIZED AS A ROUTINE IT ENABLED SERVICE P ROVIDER PROVIDING BACK-OFFICE SERVICES EXCLUSIVELY TO ACCLARIS INC, WHICH ASSUMES LESS THAN NORMAL RISKS ASSOCIATED WITH CARRYING OUT SUCH BUSINESS. 4. THE ASSESSEE FOR THE SERVICES RENDERED TO ITS AE ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM IN SHORT) AS THE MOST APPROPRIATE METH OD (MAM IN SHORT). THE PROFIT LEVEL INDICATOR (PLI IN SHORT) ADOPTED BY THE ASSES SEE WAS OPERATING PROFIT / TOTAL COST [ OP / TC ] AND ACCORDINGLY THE PLI OF THE ASSESSEE WAS ARRIVED AT 16.38%. THE PLI OF THE COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE WAS 12.68% AND ACCORDINGLY THE ASSESSEE CONSIDERED THE PRICING DONE BY IT AS THE A LP AND DID NOT MAKE ADJUSTMENT IN ITS TP STUDY AND IN THE RETURN OF INCOME. 5. THE CASE WAS REFERRED TO LEARNED TRANSFER PRICIN G OFFICER ( IN SHORT LD TPO) U/S 92CA OF THE ACT. THE LD TPO OBSERVED THAT THE ASSES SEE HAD USED THE PROWESS DATABASE DEVELOPED BY CENTRE FOR MONITORING INDIAN ECONOMY P RIVATE LIMITED (CMIE) AND CAPITALINE PLUS BASED ON WHICH, THE ASSESSEE COMPAN Y ARRIVED AT 10 COMPARABLE COMPANIES. THE LD TPO OBSERVED THAT THE ASSESSEE HA D USED MULTIPLE YEAR DATA FOR THREE FINANCIAL YEARS. IN VIEW OF THIS, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY ADOPTION OF MULTIPLE YEAR DATA SHOULD NOT BE REJECT ED AS THE STATUTE PRESCRIBES ADOPTION OF CONTEMPORANEOUS DATA RELEVANT TO THE YEAR UNDER CONSIDERATION. THE LD TPO OBSERVED THAT THE ASSESSEE IN ITS RESPONSE DID NOT PROVIDE ANY ADDITIONAL INFORMATION OR EVIDENCE REGARDING ITS JUSTIFICATION FOR THE USE OF MULTI YEAR DATA OTHER THAN THAT OF ITS GENERAL WRITE UP ON THE USE OF MULTI YEAR DATA PROV IDED IN ITS TP REPORT. THE LD TPO FURTHER OBSERVED THAT THE ASSESSEE IN ITS TP ANALYS IS HAD CONSIDERED LOSS MAKING 5 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 5 COMPANIES, COMPANIES HAVING TURNOVER AS HIGH AS RS 100 CRORES AND ABOVE TO AS LOW AS RS 1.50 CRORES ETC. 6. THE LD TPO PERFORMED HIS SEARCH TAKING INTO CONS IDERATION THE FOLLOWING FILTERS:- A) ALL COMPANIES HAVING ACCOUNTS OF THE YEAR 2007-0 8 B) COMPANIES ENGAGED IN IT ENABLED SERVICES C) SALES BETWEEN 10 CRORES TO 20 CRORES D) OPERATING PROFIT > 0 E) RELATED PARTY TRANSACTIONS AS % OF SALES > 10% 7. THE ASSESSEE BY APPLYING THE AFORESAID FILTERS A LSO PERFORMED A DETAILED REVIEW OF FUNCTIONAL AND PRODUCT PROFILE OF 10 COMPARABLE COM PANIES AS UNDER:- 8. FROM THE ABOVE LIST OF COMPARABLE COMPANIES, THE ASSESSEE ON ITS OWN, CARRIED OUT THE FAR ANALYSIS OF THE COMPARABLES WHEREIN THE ASSESSE E ACCEPTED THE FOLLOWING COMPARABLES :- 6 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 6 9. THE ASSESSEE FILED A WRITTEN SUBMISSION DATED 14 .10.2011 EXPLAINING THE REASONS FOR ACCEPTING AND REJECTING THE COMPARABLES CHOSEN. ON EXAMINATION OF THE ASSESSEES REASONS FOR REJECTION OF THE COMPARABLES IN ANNEXUR E 9 TO THE SAID LETTER DATED 14.10.2011, IT WAS FOUND THAT ONE COMPARABLE COMPAN Y NAMELY , INDUSIND INFORMATION TECHNOLOGY LTD HAS BEEN REJECTED BY THE ASSESSEE AS COMPARABLE ON THE BASIS THAT THE ANNUAL REPORT AND THE WEBSITE OF THE COMPANY COULD NOT BE FOUND. SUBSEQUENTLY THE ASSESSEE VIDE ORDER SHEET NOTING DATED 21.10.2011 W AS REQUESTED TO PROVIDE AN EXPLANATION ON HOW NON-AVAILABILITY OF THE ANNUAL R EPORT OR THE WEBSITE OF INDUSIND INFORMATION TECHNOLOGY LTD CAN BE REGARDED AS A GRO UND FOR REJECTION. THE ASSESSEE IN ITS REPLY DATED 27.10.2011 SUBMITTED AS UNDER:- .. FOR DETERMINING COMPARABILITY OF COMPARABLE COMPANIES WITH THE ASSESSEE, THE ANNUAL REPORT AND WEBSITE REVIEW OF RESPECT IVE COMPARABLES WAS ANALYZED. HOWEVER, THE ANNUAL REPORT AND WEBSITE REVIEW OF CO MPARABLE COMPANY, INDUSIND INFORMATION TECHNOLOGY LTD. COULD NOT BE OBTAINED. HENCE, DUE TO UNAVAILABILITY OF INFORMATION ON THE FUNCTIONAL PROFILE OF THE COMPAN Y, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO CONCLUDE THAT THE SAID COMPARABLE IS IN TO PROVIDING ITES/BPO SERVICES AND THAT THE SAME CAN BE INCLUDED IN THE COMPRARABLE SE T FOR THE ASSESSEE. 10. THE LD TPO IN HIS ORDER REJECTED THE ADOPTION O F MULTI YEAR DATA DONE BY THE ASSESSEE AND FURTHER OBSERVED THAT THE COMPARABLE I NDUSIND INFORMATION TECHNOLOGY LTD COMPANY DETAILS ARE AVAILABLE ON THE DATABASE AND H ENCE NON-AVAILABILITY OF ANNUAL REPORT AND WEBSITE CANNOT BE A GROUND FOR REJECTION OF THE SAID COMPARABLE. 7 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 7 ACCORDINGLY, THE LD TPO BY APPLYING THE DATA FOR TH E RELEVANT FINANCIAL YEAR I.E FY 2007-08 AND BY INCLUDING THE COMPARABLE INDUSIND IN FORMATION TECHNOLOGY LTD ARRIVED AT THE PLI OF COMPARABLES AS UNDER:- 11. THE LD TPO DETERMINED THE ALP OF SERVICES RENDE RED BY THE ASSESSEE TO ITS AE AS UNDER:- OPERATING EXPENSES OF THE TESTED PARTY BEING THE AS SESSEE RS 12,34,21,430/- THE ARMS LENGTH PRICE WOULD BE 123,421,430/- X [ 1+0.2745] = RS. 157,300,358/-. APPLYING THE VARIATION OF +-5%, THE ALLOWABLE RANGE OF ALP, WHICH CAN BE CHOSEN BY ASSESSEE, WOULD BE FROM RS. 149,435,340 TO RS. 165 ,165,376/-. HENCE, THE ADJUSTMENT REQUIRED TO BE MADE TO THE TR ANSACTION IS AS BELOW: 8 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 8 12. THIS SUM OF RS 1,36,61,522/- TOWARDS UPWARD AD JUSTMENT TO ALP IN RESPECT OF SERVICES RENDERED BY THE ASSESSEE TO ITS AE WAS ADD ED BY THE LD AO IN THE ORDER PASSED U/S 143(3) OF THE ACT DATED 9.2.2012. THIS ADJUSTM ENT WAS DELETED BY THE LD CITA BY PLACING RELIANCE ON THE DECISION OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE ASST YEAR 2007-08. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE TNMM IS THE MAM ADOPTED BY BOTH THE ASSESSEE AS WELL AS THE REV ENUE. THERE IS NO DISPUTE IN ADOPTION OF OP / TC AS THE PLI IN THE FACTS OF THE INSTANT CASE. THE ISSUE IS ONLY WITH REGARD TO EXCLUSION OF A COMPARABLE. THE SHORT POIN T THAT ARISES FOR OUR CONSIDERATION IN THE INSTANT APPEAL IS AS TO WHETHER THE EXCLUSION O F ONE COMPARABLE COMPANY I.E INDUSIND INFORMATION TECHNOLOGY LTD BY THE LD CITA IS IN ORDER. IT IS THE CASE OF THE LD AR THAT IF THIS ONE COMPARABLE ALONE IS REJECTED , THEN THE PRICE CHARGED BY THE ASSESSEE TO ITS AE ON THE SERVICES RENDERED WOULD BE AT ARM S LENGTH AS THE SAID PRICE FALLS WITHIN THE TOLERANCE RANGE OF (+) / (-) 5%. IN THI S REGARD, WE WOULD LIKE TO MAKE IT CLEAR THAT THE LD AR DID NOT SEEK FOR STANDARD DEDUCTION OF 5% TOLERANCE LIMIT TO JUSTIFY THE PRICING DONE BY THE ASSESSEE COMPANY IN THE INSTANT CASE. IT WAS SUBMITTED THAT AFTER EXCLUSION OF INDUSIND INFORMATION TECHNOLOGY LTD , THE ARITHMETIC MEAN OF THE COMPARABLES WOULD BE 18.72% AND ACCORDINGLY THE PR ICE CHARGED BY THE ASSESSEE TO ITS AE ON THE SERVICES RENDERED WOULD BE AT ARMS LENGT H. WE FIND THAT THE LD CITA HAD ONLY GRANTED RELIEF TO THE ASSESSEE BY PLACING RELI ANCE ON THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2007-08 IN IT A NO. 695/KOL/2011 DATED 11.6.2015. 6.3. AS REGARDS INDUSIND INFORMATION TECHNOLOGICAL LIMITED, IT IS THE CASE OF THE ASSESSEE THAT THE BUSINESS MODEL OF THE COMPARABLE CHOSEN BY THE TPO IS THAT OF SOFTWARE DEVELOPMENT UNLIKE THAT OF THE ASSESSEE CO MPANY WHICH IS ENGAGED IN THE BUSINESS OF BPO SERVICE. 6.4. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE PARTIES AND THE JUDGMENTS RELIED UPON, WE ARE IN AGREEMENT WITH THE AVERMENTS MADE B Y THE LD. SR. COUNSEL FOR THE ASSESSEE THAT THE AFORESAID COMPARABLE MAY BE EXCLU DED FOR THE PURPOSE OF 9 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 9 BENCHMARKING THE ARMS LENGTH PRICE OF THE INTERNAT IONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE SOFTWARE DEVELOPMENT COMPANY HAS A COMPLETELY DIFFERENT FUNCTIONAL PROFILE AS COMPARED TO A COMPANY ENGAGED IN BPO SER VICES. THE RISK UNDERTAKEN AND THE ASSETS EMPLOYED BY A SOFTWARE DEVELOPMENT COMPA NY CANNOT BE COMPARED TO A BPO COMPANY. 6.5. A SIMILAR ISSUE AROSE FOR CONSIDERATION BEFORE THE ITAT CHENNAI BENCH IN THE CASE OF S.R.A.SYSTEMS LTD. VS ACIT (2014) 147 ITD 353 WH EREIN THE TRIBUNAL HAS HELD AS UNDER :- 7. WE CONSIDERED THIS ISSUE IN DETAIL. IT IS THE C ASE OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT THE TURNOVER OF THE ASSESSEE FOR THE PAST FIVE YEARS AVERAGED TO RS.25 CRORES AND THEREFORE ITS TURNOVER BASE FOR THE PURPOSE OF ARRIVING AT COMPARABLES SHOULD BE TAKEN IN THE RANG E OF RS.15 TO 25 CRORES AFTER ELIMINATING RELATED PARTY TRANSACTIONS. ON THE ABOV E BASIS, THE ASSESSEE STAGTED THAT THE PLI CAME TO 2.53% AS AGAINST THE PLI REPOR TED BY THE ASSESSEE AT 3.33%. EVEN WHEN THE TURNOVER CRITERION IS ADOPTED AT RS.50 CRORES, THE PLI CAME TO 3.18%, WHICH IS MUCH HIGHER THAN THE PLI CR ITERION OF 2.53%. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE BUSINESS MODEL OF THE ASSESSEE IS BASED MORE ON TURNKEY PROJECTS, WHERE COST OVERRUNS WERE BORNE BY THE ASSESSEE THAT ACTUAL BENCH COSTS WERE MUCH MORE THAN THAT ESTIMATED BY T HE ASSESSEE, THAT THE ASSESSEE HAD TO INCUR CONSIDERABLE EXPENDITURE ON R ESEARCH AND DEVELOPMENT AND THAT THE ASSESSEES FINANCIALS SHOULD BE COMPAR ED TO SOFTWARE DEVELOPMENT COMPANIES AND NOT WITH COMPANIES IN THE AREA OF BPO , KPO ETC. 8. IT IS SEEN THAT IT IS AGAINST THE ABOVE OBJECTIONS RAISED BY T HE ASSESSEE THAT THE TPO HAS WORKED OUT THE PLI AT 25.44% AS AGAINST THE PLI AT 3.5%, RESULTING AN UPWARD ADJUSTMENT OF RS.4,33,80,146/-. THERE IS NO JUSTIFI CATION ON THE PART OF THE TPO TO COMPARE THE FINANCIALS OF THE ASSESSEE- COMPANY TO THOSE3 OF BPO AND KPO COMPANIES. THE FINANCIALS OF THE ASSESSEE SHOULD BE COMPARED ONLY WITH SOFTWARE DEVELOPMENT COMPANIES. WHEN A GENERAL COMP ARISON IS MADE, HUGE EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT SH OULD BE CONSIDERED. IT IS ALSO TO BE SEEN THAT THE BUSINESS MODEL OF THE ASSE SSEE WAS BASED MORE ON TURNKEY PROJECTS, IN WHICH CASE COST OVERRUNS WOULD HAVE TO BE BORNE BY THE ASSESSEE-COMPANY. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE NOT IN A POSITION TO ACCEPT THE PLI AT 25.44% DETERMINED BY THE TPO ON THE RATIO OF OPERATING PROFIT TO OPERATING COST. THIS AGAINST TH E PLI RETURNED BY THE ASSESSEE COMPANY AT 3.5%. THEREFORE, WE DO NOT APPROVE THE U PWARD ADJUSTMENT OF RS.4,33,80,146/- MADE BY THE ASSESSING OFFICER TO I TS FULL EXTENT. ON SAME SET OF FACTS, THE ISSUE OF ALP DETERMINATION WAS CONSIDERE D BY DISPUTE RESOLUTION PANEL AT CHENNAI IN ASSESSEES OWN CASE FOR THE ASS ESSMENT YEAR 2008-09. IN THEIR DIRECTION DATED 4-6- 2012 ISSUED UNDER SECTIO N 144C(5), THE PANEL HAS DIRECTED THE ASSESSING OFFICER TO ADOPT THE PLI AT 13.35% AS AGAINST THE PLI OF 21.86% ADOPTED IN THE ASSESSMENT. THIS SHOWS THAT T HE UPWARD ADJUSTMENT MADE IN THE IMPUGNED ASSESSMENT IS QUITE ARBITRARY. 10 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 10 6.6. IN THE CASE OF ACIT VS M/S.MAERSK GLOBAL SERVI CE CENTERS (INDIA) PVT. LTD. IN ITA NO.3774/MUM/2011 VIDE ORDER DATED 09.11.2011 THE IT AT MUMBAI BENCH HAS HELD AS UNDER :- 30. THE ASSESSEE IN ITS TRANSFER PRICING STUDY CON SIDERED TRANSACTIONAL NET MARGIN METHOD (HEREINAFTER CALLED TNMM) AS THE MO ST APPROPRIATE METHOD WITH NCP MARGIN AS THE PROFIT LEVEL INDICATOR TO BE NCHMARK ITS INTERNATIONAL TRANSACTIONS WITH AES. THE ASSESSEE CONDUCTED ANALY SIS FOR DETERMINING THE ALP OF INTERNATIONAL TRANSACTIONS PERTAINING TO THE PRO VISIONS OF BACK OFFICE SUPPORT SERVICES. BASED ON DATA AVAILABLE, THE WEIGHTED AVE RAGE ARITHMETICAL MEAN OF NCP MARGINS EARNED BY THE COMPARABLE INDEPENDENT CO MPANIES PERFORMING SIMILAR FUNCTIONS, WAS DETERMINED AT 7.62%. AS THE ASSESSEE EARNED NCP OF 7.90% FROM ITS INTERNATIONAL TRANSACTIONS, IT WAS C ONCLUDED THAT SUCH TRANSACTIONS WITH AES WERE AT ALP. THE ASSESSING OF FICER MADE REFERENCE TO TPO FOR COMPUTATION OF ALP IN RESPECT OF INTERNATIO NAL TRANSACTIONS. THE TPO, VIDE HIS ORDER DATED 31.10.2008, COMPUTED THE ADJUS TMENTS TO THE ALP AMOUNTING TO RS.10,49,07,225. IN SUCH COMPUTATION T HE TPO NOTED IN PARA 4 OF HIS ORDER THAT NO COMPANIES WERE IDENTIFIED AS COM PARABLES. HE SELECTED TWELVE COMPANIES AS COMPARABLE WITH THE ASSESSEES INTERNATIONAL TRANSACTIONS, DEPICTING THE NCPS AS UNDER:- TABLE B SR.NO. COMPARABLE COMPANIES OP/T% 1. ALLSEC TECHNOLOGIES LIMITED 30. 49 2. TULSYAN TECHNOLOGIES LTD. (COSMIC GLOBAL) 19 .08 3. SAFFRON GLOBAL 24.89 4. WIPRO BPO SOLUTIONS LTD. 27.60 5. VISHAL INFORMATION TECHNOLOGIES LTD. 45.65 6. ACE SOFTWARE EXPORTS LTD. 15.46 7. NUCLEUS NETSOFT & GIS INDIA LTD. 40.60 8. ASIAN CERC INFORMATION TECHNOLOGY LTD. 37.40 9. AIRLINE FINANCIAL SUPPORT SERVICES (I) LTD. (S EG) 26.54 10. GOLDSTONE TELESERVICES LTD. (SEG) 15.95 11. TRANSWORKS INFORMATION SERVICES LTD. 2.87 12. CEPHA IMAGING PVT. LTD. 47.70 MEAN 27 .80 48. INSOFAR AS THE CASES OF TULSYAN TECHNOLOGIES L IMITED AND VISHAL INFORMATION TECHNOLOGIES LIMITED ARE CONCERNED, IT IS NOTICED FROM THEIR ANNUAL ACCOUNTS THAT THESE COMPANIES OUTSOURCED A CONSIDER ABLE PORTION OF THEIR BUSINESS. AS THE ASSESSEE CARRIED OUT ENTIRE OPERAT IONS BY ITSELF, IN OUR CONSIDERED OPINION, THESE TWO CASES WERE RIGHTLY EX CLUDED. COMING TO THE CASES OF CEPHA IMAGING PRIVATE LIMITED AND ASIAN CERC INF ORMATION TECHNOLOGY LTD. (SEG.), WE FIND THAT THESE COMPANIES ARE ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES AS IS EVIDENT FROM THEIR ANNUA L REPORTS AVAILABLE ON PAGES 52 ONWARDS AND 64 ONWARDS OF THE PAPER BOOK. THUS T HESE COMPANIES BECOME FUNCTIONALLY DIFFERENT. INSOFAR AS WIPRO BPO SOLUTI ONS LIMITED IS CONCERNED, WE FIND THAT THEIR TURNOVER IS ELEVEN TIMES GREATER THAN THAT OF THE ASSESSEE. THIS 11 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 11 COMPANY HAVING SUCH A HIGH BRAND VALUE ALONG WITH M UCH HIGHER TURNOVER, IN OUR CONSIDERED OPINION, HAS BEEN RIGHTLY EXCLUDED B Y THE LD. CIT(A). THE LAST CASE BEING THAT OF AIRLINE FINANCIAL SUPPORT SERVIC ES (I) LTD. HAS 31.76% OF THE TOTAL SERVICE FEES RECEIVED FROM THE CONTROLLED TRA NSACTIONS WITH THE RELATED PARTIES. THIS FACT IS EVIDENT FROM PAGES 62 OF THE PAPER BOOK, WHICH MAKES IT INCOMPARABLE WITH THE ASSESSEE. 6.7. IN ACIT VS M/S. HAPAG LLOYD GLOBAL SERVICES PR IVATE LIMITED IN ITA NO.8499/MUM/2010 VIDE ORDER DATED 28.02.2013 SIMILA R ISSUE AROSE WHEREIN ITAT, MUMBAI BENCH HAS HELD AS UNDER :- 4.1. THE TPO OBSERVED THAT THIS COMPANY WAS IN ITE S BOTH AS PER BOARDS NOTIFICATION AND ALSO D&B WEBSITES. AS THE ASSESSEE HAD NOT CONSIDERED THIS CASE, THE TPO HELD IT AS COMPARABLE AND INCLUDED IT IN THE LIST OF COMPARABLES. THE ASSESSEE CONTENDED BEFORE THE LEARNED CIT(A) TH AT THE SAID COMPANY WAS FUNCTIONALLY INCOMPARABLE AS IT WAS MAINLY ENGAGED IN SOFTWARE AND APPLICATION DEVELOPMENT. THE LEARNED CIT(A) CONSIDERED THE ANNU AL REPORT OF THIS COMPANY AND OBSERVED THAT IT REFERRED MAINLY TO THE INCOME FROM EXPORT SALES OF SOFTWARE AS AGAINST THE ASSESSEES BUSINESS OF ITES. ACCORDI NGLY THIS CASE WAS EXCLUDED FROM THE LIST OF COMPARABLES. 4.2. THE LD. AR MAINLY RELIED ON THE DECISION OF TH E MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V.MEARSK GLOBAL SERVIC E CENTRES (INDIA) PRIVATE LIMITED [(2011) 133 ITD 543 (MUM)] TO BRING HOME TH E POINT THAT THE CASE OF CEPHA IMAGING PRIVATE LIMITED SHOULD BE EXCLUDED AS THE SAME HAS BEEN HELD BY THE TRIBUNAL IN THAT CASE AS INCOMPARABLE. 4.4. ADVERTING TO THE FACTS OF THE INSTANT CASE WE FIND THAT THE ASSESSEE IN MEARSK GLOBAL SERVICE CENTRES (INDIA)PRIVATE LIMITE D (SUPRA) WAS A SERVICE PROVIDER RENDERING BACK OFFICE SUPPORT SERVICE TO I TS ASSOCIATED ENTERPRISES (AES). IN PARA 29 OF THIS ORDER, IT HAS BEEN RECORD ED BY THE TRIBUNAL THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE WERE ESSENTIA LLY ITES, SUCH AS, DATA ENTRY, TRANSCRIPTION AND DATA OF SHIPPING DOCUMENTS SUCH A S BILL OF LEADING ETC. THE INSTANT ASSESSEE BEFORE US IS ALSO IN THE SAME LINE OF BUSINESS PROVIDING SIMILAR SERVICES AS WERE RENDERED IN THE CASE OF MEARSK GLO BAL SERVICE CENTRES (INDIA)PRIVATE LIMITED (SUPRA). FURTHER THE A.Y. IN BOTH THE CASES IS ALSO SIMILAR, THAT IS, 2005-2006. IN THAT CASE ALSO, THE TPO INTR ODUCED CEPHA IMAGING PRIVATE LIMITED AS COMPARABLE. HOWEVER, THE TRIBUNA L VIDE PARA 48 OF ITS ORDER OBSERVED THAT THIS COMPANY IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICE AS ITS EVIDENT FROM THEIR ANNUAL REPORT AVA ILABLE ON PAGES 52 ONWARDS AND 64 ONWARDS OF THE PAPER BOOK. WE FIND THAT THE FINDING RECORDED BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER THAT CEPHA IMA GING PRIVATE LIMITED WAS MAINLY ENGAGED IN EXPORT OF SOFTWARE TALLIES WITH T HAT RECORDED BY THE TRIBUNAL IN THE CASE OF MAERSK. AS THE ASSESSEE IS ENGAGED I N ITES, ANY COMPANY ENGAGED IN EXPORTING SOFTWARE, CANNOT BE CONSIDERED AS COMPARABLE. WE, THEREFORE, HOLD THAT THIS CASE WAS RIGHTLY EXCLUDED BY THE LEARNED CIT(A). 12 ITA NO.1457/KOL/2017 M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD. A.YR. 2008-09 12 6.8. IN VIEW THEREOF, THE AFORESAID COMPARABLE I.E. INDUSIND INFORMATION TECHNOLOGY IS EXCLUDED FOR THE PURPOSE OF BENCH MARKING THE INTER NATIONAL TRANSACTIONS OF THE ASSESSEE. ACCORDINGLY, GROUND NO. 2 RAISED BY THE A SSESSEE IS ALLOWED. 13.1. RESPECTFULLY FOLLOWING THE SAID JUDICIAL PREC EDENT IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, WE HOLD THAT THE SAID COMPARABLE I.E M/S INDUSIND INFORMATION TECHNOLOGY LTD HAS BEEN RIGHTL Y EXCLUDED BY THE LD CITA CONSIDERING THE ENTIRELY DIFFERENT FUNCTIONAL PROFI LE AND HENCE NOT COMPARABLE WITH THE ASSESSEE COMPANY AS THE SAID COMPARABLE WAS MAINLY INTO PROVIDING MANAGEMENT CONSULTANCY SERVICES ON INFORMATION TECHNOLOGY MAT TERS. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 14.09.2018 SD/- SD/- [S.S. GODARA] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 14.09.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. ACIT, CIRCLE-14(1), KOLKATA, AAYAKAR BHAWAN POOR VA, 110, SHANTIPALLY, KOLKATA- 700107. 2. M/S ACCLARIS BUSINESS SOLUTIONS (P) LTD, ECO SPA CE TOWER, 2B, 2 ND FLOOR, UNIT 201, NEW TOWN, RAJARHAT, 24 PGS (N), KOLKATA-700156, WES T BENGAL 3..C.I.T(A).- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S