DCIT (OSD) 2(3), MUMBAI V. SWISS RE-SERVICES INDIA P.LTD, MUMBAI

ITA 1465/MUM/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1666 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 04-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; International transaction; Rule of consistency; Question of law
• Section: 92D; 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI SANDEEP GOSAIN, JM I.T.A. NO. 1465/MUM/2014 ( ASSESSMENT YEAR: 2009 - 10 ) DCIT (OSD) - 2(3), R. NO. 552, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400020 VS. M /S. SWISS RE - SERVICES INDIA PVT. LTD. UNIT NO. 701/702, TOWER A, PENINSULA CORPORATE PARK, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI - 400 057 PAN/GIR NO. AAHCS 5626 E ( REVENUE ) : ( ASSESSEE ) & I.T.A. NO. 1493/MUM/2014 (ASSESSMENT YEAR: 2009 - 10 ) M/S. SWISS RE - SERVICES INDIA PVT. LTD. UNIT NO. 701/702, TOWER A, PENINSULA CORPORATE PARK, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI - 400 057 VS. DCIT (OSD) - 2(3), R. NO. 552, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400020 PAN/GIR NO. AAHCS 562 6 E ( ASSESSEE ) : ( REVENUE ) REVENUE BY : SHRI V. JENARDHANAN ASSESSEE BY : SHRI KAMAL SAWHNEY/ SHRI ABHISHEK TILAK DATE OF HEARING : 05.07.2018 DATE OF PRONOUNCEMENT : 31.08 .2018 O R D E R PER S HAMIM YAHYA, A. M.: THESE ARE THE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE A GAINST THE ORDER PASSED BY THE ASSESSING OFFICER (A.O. FOR SHORT) DATED 03.01.2014 PURSUANT TO THE DIRECTION OF THE DISPUTE RESOLUTION PANEL - II, MUMBAI (DRP' FOR SHORT) D ATED 31.12.2013 AND PERTAIN TO THE A SSESSMENT YEAR (A.Y. FOR SHORT) 2009 - 10. 2 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. 2. THE GROUNDS OF APPEAL IN REVENUE S APPEAL READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW , THE HON'BLE DRP HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNE D IN THE GROUNDS ENUMERATED BELOW: - ' 1. ON THE FACT AND IN THE CIRCU MSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP ERRED IN DIRECTING THE EXCLUSION OF COMPARABLES SUCH AS A DITYA BIRLA MINACS WORLDWIDE LTD. AND C ROSS DOMAIN SOLUTIONS PVT . LTD. IGNORING THE FACT THA T THE ANNUAL REPORT O F THE COMPANIES WERE AVAILABLE IN PUBLIC DOMAIN DURING THE TP SCRUTINY AND ALSO, US PER AS - 17 NORMS ON SEGMENT REPORTING, THE ASSESSEE HAD GIVEN ITS CHARACTERISATION AS BPO SERVICES COMPANY IN THE ANNUAL REPORT. 2 . ON T HE FA CT AND IN THE CIRCUMSTANCES O F T HE CASE AND IN LAW, THE HONBLE DRP ERRED IN REJECTING THE COMPARABLES OF EXCEL INFOWAYS LTD AND MOLD TEK TECHNOLOGIES LTD. WITHOUT APPRECIATING THAT THE COMPARABLES ARE JUSTIFIED SINCE EXCEL INFOWAYS LTD AN D MOL D TEK TECHNOLOGIES LTD CARR Y OU T BP O AND KP SERVICES (I TES ) . 3. ON THE FA CT AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP ERRED IN REJECTING THE COMPARA B LES OF PROXIMUS KNOWLEDGE & TECHNOLOGIES SERVICES PVT. LTD. ON THE GROUN DS THAT ( I ) FOREIGN EXCHANGE REVENUE IS NIL AND ( II ) JWL ACCOUNT WAS NOT AVAILABLE WITHOUT APPRECIATING THE FAD THAT A COMPARABLE CAN BE REJECTED ONLY ON THREE GROUNDS I.E. FUNCTION, ASSET OR RISK. SINCE THESE COMPARABLES ARE ENGAGED IN PROVIDING BPO SERVI CES, THE JUNCTIONS ARE COMPARABLE. 4 . ON THE FAD AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP ERRED IN REMOVING THE COMPARABLES OF (I ) SPARSH BPO SERVICES LT D. (II ) SUREWIN INTERNE T SERVICES L T D AND (III ) S U NDRAM BUSINESS SERVICES LTD O N THE GROUND THAT THE TURNOVER OF THE COMPARABLES WERE VERY HIGH WITHOUT APPRECIATING THE FAD THAT THE COMPARABLE CAN BE REMO VED ONLY ON THREE GROUNDS I.E. FUNCTION, ASSET OR RISK NO OTHER CRITERIA COULD BE INVOKED . 5. ON THE FAD AND IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW , THE HONBLE DRP ERRED IN DIRECTING TO REMOVE WRITE OFF O F FIXED ASSETS AMOUNTING TO RS. 2 8 LACS AS NON - OPERATING EXPENSES FROM T HE CALCULATION OF OPERATING PROFIT MARGIN WITHOUT APPRECIATING THAT FIXED ASSET S AND DEPRECIATION TH ERE ON ARE PA RT OF OPERATING EXPENSES. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE DISPUTE RESOLUTION PANEL MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 3. THE GROUNDS OF APPEAL IN ASSESSEES APPEAL READ A S UNDER: GROUND 1 - TRANSFER PRICING ADJUSTMENT OF RS. 2,21,25,308 RELATING TO PROVISION OF SUPPORT SERVICES 3 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED TRANSFER PRICING OFFICER ('TPO') AND THE LEARNED ASSESSING OFFICER ('AO') UND ER THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') ERRED ON FACTS AND IN LAW IN MAKING AN ADDITIO N OF RS.2, 21,25 , 308 TO THE INTERNATIONAL TRANSACTION OF THE APPELLANT BASED ON THE PROVISIONS OF CHAPTER X OF THE INCOME - TAX ACT, 1961 ('THE ACT '). 1.2 THE LEARNED AO/TPO UNDER THE DIRECTIONS OF THE HON'BLE DRP ERRED ON FACTS AND IN LAW IN ARBITRARILY GIVING FACTUALLY INCORRECT REASONS TO REJECT / DISREGARD THE DETAILED AND METHODICAL BENCHMARKING ANALYSIS AND COMPARABLE COMPANIES SELECTED BY THE APPELLANT WITHOUT APPRECIATING THE FACT THAT SUCH SELECTION WAS BASED ON THE CONTEMPORANEOUS DATA AND THE TRANSFER PRICING STUDY REPORT PREPARED AND MAINTAINED AS PER SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME - TAX RULES, 1962 ('THE RULES'). 1 .3 THE LEARNED AO/TPO UNDER THE DIRECTIONS OF THE HON'BLE DRP ERRED ON FACTS AND IN LAW IN APPLYING AN ARBITRARILY PREPARED SET OF COMPANIES TO DETERMINE THE ARM'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT, WITHOUT TAKING INTO CONSID ERATION THE DIFFERENCES IN THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS UNDERTAKEN BETWEEN THE APPELLANT AND THE COMPANY CONSIDERED AS COMPARABLE BY THE TPO AND WITHOUT FINDING ANY MATERIAL DEFICIENCIES IN THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT. 1.4 THE LEARNED AO/TPO UNDER THE DIRECTIONS OF THE HON'BLE DRP ERRED ON FACTS AND IN LAW IN VIOLATING THE RULES OF NATURAL JUSTICE BY NOT PROVIDING/SHARING THE SEARCH PROCESS INCLUDING THE STEP BY STEP ACCEPT/REJECT MATRIX AND FUNCTION, ASSETS AND RISK ANALYSIS OF THE COMPARABLES SELECTED BY THE TPO AND NOT PROVIDING ANY BASIS FOR ARRIVING AT THE MARGINS OF THE COMPARABLE COMPANIES SELECTED TO ARRIVE AT THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. 1.5 THE LEARNED AO/TPO UNDER THE DIRECT IONS OF THE HON'BLE DRP ERRED ON FACTS AND IN LAW IN REQUIRING FINANCIAL DATA OF ONLY THE CURRENT YEAR (I.E. FY 2008 - 09) OF THE COMPARABLE COMPANIES TO BE USED FOR BENCHMARKING THE APPELLANT'S INTERNATIONAL TRANSACTION OF PROVISION OF SUPPORT SERVICES. 1.6 THE LEARNED AO/TPO UNDER THE DIRECTIONS OF THE HON'BLE DRP ERRED ON FACTS AND IN LAW IN NOT ALLOWING APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES AS WAS COMPULSORILY REQUIRED TO BE DONE IN ACCORDANCE WITH THE PROVISIONS OF RULE 10B(L)(E)(III) OF T HE RULES, TO ACCOUNT FOR DIFFERENCE BETWEEN INTERNATIONAL TRANSACTIONS AND THE ALLEGED COMPARABLE UNCONTROLLED TRANSACTIONS SELECTED B Y THE LEARNED AO/TPO. THE APPELLANT PRAYS THAT THE LEARNED AO/TPO BE DIRECTED TO CONSIDER THE INTERNATIONAL TRANSACTION OF THE APPELLANT AS ARM'S LENGTH AND ACCORDINGLY THE TRA NSFER PRICING ADJUSTMENT OF RS. 2,21,25,308 SHOULD BE DELETED. GROUND 2 - CONSEQUENTIAL RELIEFS 2.1 THE LEARNED AO/TPO UNDER THE DIRECTIONS OF THE HON'BLE DRP ERRED IN ARRIVING AT VARIOUS UNWA RRANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY 4 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. RELEVANT MATERIAL IN DECIDING THE CASE. FURTHER, THEY ALSO FAILED TO CONSIDER THE CONTRARY MATERIAL AND EVIDENCE ADDUCED BY THE APPELLANT, ACCORDINGLY, THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO GRAN T ALL CONSEQUENTIAL RELIEFS ARISING OUT OF RELIEFS FROM THIS APPEAL. 2.2 THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT OF RS.53,40,226. ACCORDINGLY, THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO GRANT CONSEQUENTIAL RELIEF IN COMPUTING INTEREST UNDER SECTION 234B OF THE ACT IN ACCORDANCE WITH THE LAW. 2.3 THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234C OF THE ACT OF RS.7,58,958. ACCORDINGLY, THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO GRANT CONSEQUENTIAL REL IEF IN COMPUTING INTEREST UNDER SECTION 234C OF THE ACT IN ACCORDANCE WITH THE LAW. I. APROPOS TRANSFER PRICING ADJUSTMENT: 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIAR Y OF SWISS REINSURANCE LIMITED, WHICH IS INCORPORATED I N ZURICH, SWITZERLAND. THE ASSESSEE I S E NGAGED IN PROVIDING CONSULTANCY SERVICES. DURING THE PREVIOUS YEAR THE ASSESSEE HAS PROVIDED TOTAL SERV ICES AMOUNTING TO RS.24,74,49,950/ - . THIS IS THE MAIN INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. B ESIDES THIS TRANSACTION THE ASSESSEE HAS ALSO ENTERED INTO TWO TRANSACTIONS RELATING TO THE REIMBUR SEMENTS OF EXPENSES AND ADVANCE RECEIVED FROM ITS ASSOCIATED ENTERPRISE. THE ASSESSEE HAS ADOPTED THE TRANSACTIONAL NET MARGIN METHOD TO BENCHMARK ITS INTERN ATIONAL TRANSACTIONS. THE ASSESSEE HAS IDENTIFIED VARIOUS COMPARABLE COMPANIES FROM PUBLIC DATA BASE WHICH ARE ENGAGED IN PROVIDING VARIOUS DIFFERENT TYPES OF SERVICES INCLUDING SOFTWARE AND IT ENABLED SERVICES. THE AVERAGE MARGIN OF THE COMPARABLE CASES I DENTIFIED BY THE ASSESSEE WAS DETERMINED AT 9.82%. THE ASSESSEE HAS WORKED OUT ITS MARGIN FOR THE PREVIOUS YEAR AT 13.48%. THE ASSESSEE HAS HENCE CONTENDED THAT AS ITS MARGINS ARE BETTER THAN THE MARGINS EARNED BY THE COMPARABLE CASES, ITS INTERNATIONAL TR ANSACTIONS ARE AT ARM'S LENGTH. 5 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. 5. IN THE COURSE O F TRANSFER PRICING PROCEEDINGS THE A.O. HAS EXAMINED THE VARIOUS COMPARABLE CASES IDENTIFIED BY THE ASSESSEE AND OUT OF THE SAME HAS RETAINED ONLY, THREE CASES. OUT OF THE 12 CASES IDENTIFIED BY THE ASSESSE E AS COMPARABL E, THE TPO HAS REJECTED 9 CASES. THE TPO HAS FURTHER ADOPTED A SEARCH IN TH E DATA BASE TO IDENTIFY MORE COMPARABLE CASES. FINALLY AFTER ISSUING VARIOUS SHOW CAUSE NOTICES AND SEEKING THE EXPLANATION OF THE ASSESSEE, T HE TPO HAS IDENTIFIED 25 CASES A S COMPARABLE TO THE ASSESEEE. THE AVERAGE MARGIN OF THESE 25 CASES WORKS OUT TO 27.99%. THE A . O . HAS ALSO REWORKED THE OPERATING PROFIT MARGIN OF THE ASSESSEE AT 12% AFTER TREATING THE AMOUNT OF WRITE OFF OF FIXED ASSETS AS AN OPERATING COST. AFTER COMPARING THE MARGIN OF 12% WITH 27.99%, THE TPO HAS DETERMINED AN ADJUSTMENT OF RS.3.53 CRORES IN RESPECT OF THE ASSESSEE'S INTERNATIONAL TRANSACTION RELATING TO PROVISIONS OF SERVICES TO ITS ASSOCIATED ENTERPRISES (AE FOR SHORT) . BESIDES THE TRANSFER P RICING ADJUSTMENT, THE AO HAS ALSO HELD CERTAIN EXPENSES IN CURRED FOR CLUB MEMBERSHIP AS CAPITAL EXPENSES AND DISALLOWED THE SAME . 6. AS REGARDS THE TPO 'S SELECTION OF COMPARABLE, THE LD. CIT(A) GRANTED PART RELIEF AGAINST WHICH THE ASSESSEE AND THE REVEN UE ARE IN CROSS APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE DISPUTES THE FOLLOWING SELECTION OF COMPARABLES IN THIS CASE : A) CORAL HUBS LTD. ALSO KNOWN AS VISHAL IN FORMATION TECHNOLOGIES LTD. B) ECLERX SERVICES LTD. C) ACCENTIA TECHNOLOGIES LTD. D) COSMIC GLOBAL LTD. 6 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. 8. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE SUPPORTS THE DRP DIRECTION IN REJECTING THE FOLLOWING COMPARABLE S : A) EXCEL INFOWAYS LTD. ACCORDINGL Y, WE PROCEED TO ADJUDICATE THE ISSUE AS UNDER: A) CORAL HUBS LTD. : I N THIS CASE, THE ASSESSEE HAD ARGUED THAT THE BUSINESS MODEL OF THIS COMPANY IS DIFFERENT AS IT HAS OUTSOURCED A MAJOR PART OF ITS ACTIVITY TO THIRD PARTY. IT WAS SUBMITTE D THAT THE EM PLOYEE COST IN THIS CASE IS ONLY 2% OF THE OPERATING REVENUE WHEREAS IN ASSESSEES CASE THE EMPLOYEE COST CONSTITUTES MORE THAN 50% OF THE ASSESSEES REVENUES. HENCE, IT WAS CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY SIMILAR TO THE ASSESSEE. IN THIS R EGARD, THE ASSESSEE HAS RELIED ON TRIBUNALS DECISION IN THE CASE OF MERSK GLOBAL SERVICES CENTRE INDIA PVT. LTD. (IN ITA NO. 3774/M/2011). THE DRP IN THIS REGARD HAS REJECTED THE ASSESSEES CONTENTION. IT HAS GIVEN THE FOLLOWING DIRECTIONS: THE TPO HAS A CCEPTED THIS AS A COMPARABLE, WHICH THE ASSEESSEE IS CONTESTING ON THE GROUND THAT THIS ENTITY IS INTO SUB - CONTRACTING OF ITS ITES BUSINESS AND HAS MADE SIGNIFICANT PAYMENT TO VENDORS. AS PER PAGE 43 OF THE ANNUAL REPORT THE OPERATING EXPENDITURE FOR THE Y EAR ENDING 31ST MARCH, 2009 HAS INCREASED 77.15% AND THE INCREASE IN EXPENDITURE IS PRIMARILY ON ACCOUNT OF INCREASE IN SCALE OF OPERATIONS. THIS SHOWS THAT THE DATA ENTRY CHARGES MENTIONED ON PAGE 74 ARE OPERATIONAL IN NATURE AND NOT SUBCONTRACTED AS CONT ENDED BY THE ASSESSEE. FURTHER, AS HELD IN PARA 63.1 OF M/S WILLIS PROCESSING SERVICES (INDIA) PVT LTD IN ITA NO.4547/MUM/2012, THIS ENTITY HAD UTILIZED 80% OF ITS SEATING CAPACITY. THIS FACT WAS ALSO REITERATED IN M/S VODAFONE INDIA SERVICES PVT LTD IN IT A NO.7140/MUM/2012. THUS, IT CANNOT BE SAID THAT ON THE BASIS OF SEATING CAPACITY THAT IT IS FOLLOWING THE OUTSOURCING MODEL. FURTHER, ON PERUSAL OF THE SCHEDULE 14, IT IS SEEN THAT RS. 40.31 CRORE IS PAID TOWARDS 'DATA ENTRY CHARGES, VENDOR PAYMENTS AND E XPENSES ON CONVERSION OF BOOKS INTO POD TITLES'. FROM THIS, IT CANNOT BE KNOWN, WHAT IS THE EXACT QUANTUM OF VENDOR PAYMENTS. THUS, THE CLAIM OF THE ASSESSEE OF DIFFERENT BUSINESS MODEL REMAINS UNSUBSTANTIATED IN THIS YEAR. FURTHER, IT AT DELHI IN THE CASE OF AGILENT TECHNOLOGIES IN ITA NO.6047/DEL/2Q12 RELYING ON THE DECISION OF COORDINATE DELHI BENCH IN THE CASE 7 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. OF RAM GREEN SOLUTIONS PRIVATE LIMITED VS. ACIT VIDE ORDER DATED 22.3.2013 IN L.T.A. NO. 6286/DEL/2012 (A.Y. 2008 - 09) HAVE EXTENSIVELY DEALT WITH THE ABOVE ISSUE IN PARAS 38 TO 41 OF THE ORDER AND HAVE HELD THIS COMPANY TO BE A VALID COMPARABLE. THUS, ALTHOUGH THIS COMPANY WAS REJECTED AS A COMPARABLE BY THE EARLIER DRP, IN LIGHT OF THE NEW FACTS AND JUDICIAL PRECEDENTS AS STATED ABOVE, THE CLAIM O F THE ASSESSEE IS REJECTED. THE TPO'S ACTION IS ACCORDINGLY UPHELD FOR THIS YEAR. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE HAS REFERRED TO HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF PR. CIT VS. PTC SOFTWARE (I) PVT. LTD. (IN INCOME TAX APPEA L NO. 598 OF 2016 IN THIS CASE VIDE ORDER DATED 16.04.2018). IN THIS CASE, THE HON'BLE BOMBAY HIGH C OURT HAS UPHELD THE EXCLUSION OF THIS COMPA RABLE ON THE PREMISE THAT THE SAID COMPANY FUNCTIONALLY OUTSOURCED A MAJOR PART OF ITS ACTIVITY TO THIRD PARTY AN D ACCORDINGLY IS NOT A VALID COMPARABLE . THE HONBLE HIGH COURTS DECISION ON THIS ISSUE READS AS UNDER: 4. RE. QUESTION (C): (I) VISHAL INFORMATION TECHNOLOGY LTD.. FNOW KNOWN AS CORAL HUBS LTD.: - (I) THE IMPUGNED ORDER OF THE TRIBUNAL HELD THA T IT IS TO BE EXCLUDED FROM THE LIST OF COMPARABLES TO DETERMINE THE ALP OF THE RESPONDENT. THIS, BY FOLLOWING ITS ORDER DATED 30 TH APRIL, 2014 IN THE RESPONDENT - ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08. IT WAS SO HELD AS FUNCTIONAL LY VISHAL INFORMATION TECHNOLOGIES LTD., OUTSOURCES THE SERVICES TO BE RENDERED BY IT TO THIRD PARTY - VENDORS WHILE THE RESPONDENT ITSELF RENDERED SERVICES TO ITS ASSOCIATED ENTERPRISE (AE) AND DID NOT OUTSOURCE ITS SERVICES. (II) MR. SURES H KUMAR. LEARNED COUNSEL FOR THE RESPONDENT - REVENUE VERY FAIRLY STATES THAT BEING AGGRIEVED BY THE TWO ORDERS DATED 30 TH APRIL, 2014 FOR THE ASSESSMENT YEAR 2006 - 07 AND 2007 - 08 IN THE CASE OF THE SAME RESPONDENT - ASSESSEE, IT HAD PREFERRED APPEALS TO THIS C OURT BEING INCOME TAX APPEAL NO. 732 OF 2014 (CIT V/S. PTC SOFTWARE (I) PVT. LTD.) AND INCOME TAX APPEAL NO. 337 OF 2014 (GIT V/S. PTC SOFTWARE (I) PVT. LTD., BOTH THE APPEALS BY THE REVENUE HAD CHALLENGED THE EXCLUSION OF THE VISHAL INFORMATION TECHNOLOGI ES LTD., AS A COMPARABLE, WERE DISMISSED BY ORDERS DATED 10 TH OCTOBER, 2016 (ASSESSMENT YEAR 2006 - 07) AND 26 TH SEPTEMBER, 2016 (ASSESSMENT YEAR 2007 - 08), AS NOT GIVING RISE TO ANY SUBSTANTIAL QUESTION OF LAW. NO DISTINGUISHING FEATURES HAVE BEEN POINTED OU T FOR THE SUBJECT ASSESSMENT YEAR FROM THAT PREVAILING IN ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 WHICH WOULD WARRANT A DIFFERENT VIEW. 8 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. (III) THUS, SUB - QUESTION (I) AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. REFERRING TO THE ABOVE, THE LD. COUNSEL OF THE ASSESSEE STATED THAT SINCE THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR INASMUCH AS IT HAS OUTSOURCED A MAJOR PART OF ITS ACTIVITY TO THIRD PARTY, THIS COMPA NY CANNOT BE CONSIDERED TO BE A VALID COMPARABLE. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE ( LD.DR FOR SHORT) RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. UPON CAREFUL CONSIDERATION, WE FIND THAT SINCE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE DECISION AS REFERRED ABOVE HAS HELD THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR INASMUCH IT OUTSOURCED SUBSTANTIAL ACTIVITIES TO BE RENDERED TO THIRD PARTY, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THAT THIS COMPARABLE SHOULD NOT BE TAKEN AS A VALID COMPARABLE. B) ECLERX SERVICES LTD. : IN RESPECT OF THIS C OMPARABLE, THE ASSESSEE HAS SUBMITTED THAT THIS IS ENGAGED IN DATA ANALYTIC KPO SERVICE SPECIALIZING IN THE FIELD OF FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. THE ASSESSEE HAS S UBMITTED THAT AS ECLERX IS A KPO WHEREAS THE ASSESSEE NAS BEEN CLASSIFIED AS AN IT ENABLED SERVICE PROVIDER BY THE TPO, ECLERX CANNOT BE TAKEN AS A COMPARABLE CASE. THE ASSESSES IN THIS REGARD EXPLAINED THAT WHILE UNDER BPO SERVICES, THE MAIN ACTIVITIES IN VOLVE DATA ENTRY, DATA PROCESSING AND OTHER ROUTINE SERVICES, IN THE CASE OF KPO THE SERVICES ARE MORE RESEARCH ORIENTED INVOLVING HIGHER SKILL 9 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. SET LEVELS. THOUGH EVEN UNDER KPO SERVICES THERE MAY BE SOME AMOUNT OF BPO ACTIVITY, KPO SERVICES ARE ESSENTIALL Y CHARACTERIZED BY PERFORMANCE OF RESEARCH, DOMAIN BASED ANALYSIS AND DOMAIN BASED EXPERTISE. IN A KPO SERVICE, DEPTH OF KNOWLEDGE AND EXPERIENCE AND JUDGEMENT FACTOR PLAYS AN IMPORTANT ROLE WHILE IN THE CASE OF BPO, IT IS CONCERNED MORE WITH SIZE, VOLUME AND EFFICIENCY. HIGHLIGHTING THESE ASPECTS THE ASSESSEE HAS SUBMITTED ECLERX SHOULD NOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE. THE DRP IN THIS REGARD HAS REJECTED THE ASSESSEES CONTENTION BY OBSERVING AS UNDER: WHILE EXAMINING THE FUNCTIONAL ANALY SIS PERFORMED BY THE ASSESSEE IN ITS STUDY REPORT, IT HAS ALREADY BEEN POINTED OUT THAT THE ASSESSEE'S ACTIVITY IS MORE IN THE NATURE OF ANALYTICS AND NOT IN THE NATURE OF ROUTINE BPO ACTIVITY. AS A MATTER OF FACT, IT IS EXPLAINED AT PARA 4.1.1.3 OF THE TP STUDY REPORT THAT THE ASSESSEE HELPS THE AE IN EVALUATING THE PROBABLE MAXIMUM LOSS INCLUDING INSPECTION OF THE LOCATION, CONSTRUCTION, FIRE FIGHTING ABILITY ETC OF THE PROPERTY WHICH IS SUBJECT MATTER OF INSURANCE. THE INFORMATION THAT IS PROVIDED BY THE ASSESSEE ALSO ASSIST THE AE IN SUGGESTING SUITABLE MODIFICATION / IMPROVEMENT IN THE PROCESS THAT COULD REDUCE POTENTIAL HAZARDS AND CONSEQUENTIALLY THE PREMIUM. SIMILARLY UNDER THE CLAIMS SUPPORT THE ASSESSEE FACILITIES THE CLAIM SURVEY PROCESS BY SUPPOR TING THE INTERNATIONAL LOSS ADJUSTERS SENT BY THE AE TO ASSESS THE CLAIM. SIMILARLY 'LOSS OF PROFIT CLAIM' INVOLVES A CONSIDERABLE AMOUNT OF ESTIMATION AND IS SUBJECTIVE. THE PROCESS INVOLVED IS INHERENTLY COMPLICATED AND IT IS AGAIN EXPLAINED AT PARA 4.1. 1.5 OF THE TPSR THAT THE ASSESSEE SUPPORTS AND HEIPS AE IN PROCESSING SUCH BUSINESS INSURANCE CLAIMS BY GATHERING AND PROCESSING ALL THE RELEVANT DATA IN A SUITABLE MANNER. A LL THIS CLEARLY SHOWS THAT THE SERVICES PERFORMED BY THE ASSESSEE ARE NOT PURELY I N THE NATURE OF BPO SERVICES AS CONTENDED BY IT OR EVEN AS CONSIDERED BY THE TPO. A REFERENCE TO THE ANNUAL REPORT OF ECLERX ALSO INDICATED THAT THE E - CLERK IS ENGAGED IN SIMILAR SERVICES OF PROVIDING MARKET RESEARCH, MARKET SUPPORT, ANALYSIS OF DATA ETC. HENCE, FUNCTIONALLY THERE APPEARS TO BE NO REASON WHY ECLERX SHOULD NOT BE COMPARED WITH THE ASSESSEE. HENCE , THIS COMPARABLE IS RETAINED. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT UNLIKE THIS COMPARABLE, ECLERX SERVICES LTD. IS NOT INVOLVED IN HIGH - END SERVICES AND IT IS NOT A KPO. 10 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. IT HAS BEEN SUBMITTED THAT THE ASSESSEE IS ENGAGED INTO VARIOUS SERVICES LIKE DATA ANALYTICAL, DATA PROCESSING SERVICES, PRICING ANALYTICS, BUNDLING OPTIMIZATION, CONTENT OPERATION, SALES AND MARKETING SUP PORT, PRODUCT DATA MANAGEMENT, REVENUE MANAGEMENT. FOR THIS, THE LD. COUNSEL OF THE ASSESSEE HAS REFERRED TO EXTRACTS FROM THE ANNUAL REPORT. ON THE OTHER HAND, IT HAS BEEN SUBMITTED THAT THE ASSESSEE IS MERELY ENGAGED IN RENDERING OF SUPPORT SERVICES TO ITS FOREIGN AE. HENCE, IT HAS BEEN CLAIMED THAT ECLERX SERVICES LTD. IS ENGAGED INTO THE VARIOUS SERVICES WHICH ARE FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. IT HAS BEEN FURTHER SUBMITTED THAT NO SEGMENTAL FINANCIAL DATA IS AVAILABLE AND, HENCE, IN THE ABSE NCE OF SAID DATA, IT CANNOT BE SAID TO BE COMPARABLE TO THE ASSESSEE. I N THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT WITHOUT PREJUDICE TO THE SUBMISSION OF THE ASSESSEE THAT IT IS NOT INVOLVED IN HIGH AND SERVICES AND THAT IT IS NOT A KPO, IT IS SUBMITTED THAT TWO COMPANIES CANNOT BE HELD TO BE COMPARABLE TO EACH OTHER MERELY BECAUSE BOTH THE COMPANIES ARE ENGAGED INTO KPO SERVICES. PER CONTRA, THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. UPON CAREFUL CONSIDERATION, WE FIND T HAT THE ITAT HAS CONSIDERED THIS ISSUE IN THE CASE OF M/S. FRACTAL ANALYTICS PRIVATE LIMITED (SUPRA), WHEREIN THE TRIBUNAL HAS HELD AS UNDER: '72, UPON CAREFUL CONSIDERATION, WE NOTE THAT ASSESSEE IS ENGAGED IN PROVIDING ANALYTICAL SOLUTIONS TO ITS AES TO LOWER THE COST OF CUSTOMER ACQUISITION, TO IMPROVE BRAND PERFORMANCES, IMPROVE MULTI - DIMENSIONAL REPORTING, UNDERSTAND CONSUMER BEHAVIOR, AND MANY OTHER ANALYTICAL SERVICES. AS AGAINST THE ABOVE, WE FIND THAT ECLERX SERVICES IS ENGAGED INTO DIVERSE RANGE OF ACTIVITIES WHICH INCLUDES FINANCIAL SERVICES AND SALES AND MARKETING SUPPORT SERVICES. ITS FUNCTIONS PRIMARILY ARE CONSULTANCY, BUSINESS ANALYSIS AND SOLUTION TESTING. THUS, M/S.ECLERX SERVICES IS ENGAGED INTO VARIOUS FUNCTIONS AND SEGMENTS. ITS SEGMENT AL DATA ARE NOT 11 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. AVAILABLE. IN FOLLOWING CASE LAWS IT HAS BEEN HELD THAT THE COMPANY SHOULD HE REJECTED AS COMPARABLE AS ITS SEGMENTAL DATA ARE NOT AVAILABLE: - (I) M/S.CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVL. LTD. V. ACIT [ITA NO.L 24/HYD/2014] (II) M/S. EXCELLENCE DATA RESEARCH PVT. LTD V. ITO [ITA NO. 159/HYD/2014] 13. FURTHERMORE WE NOTE THAT IN THE CASE OFRAMPGREEN SOLUTIONS PRIVATE LIMITED (SUPRA) HAS HELD THAT ALTHOUGH SUPERPROFITS COULD NOT BE THE ONLY REASON TO EXCLUDE THE C OMPARABLE, HOWEVER, HON 'BLE HIGH COURT HAD EXPOUNDED THAT IN SUCH CIRCUMSTANCES IT MAY BE NECESSARY TO BEAR IN MIND THE SUPER NORMAL PROFITS IN A CERTAIN CASES INDICATED FUNCTIONAL DISSIMILARITY. THAT A WIDE DEVIATION IN THE PLI AMONGST SELECTED COMPARABL ES COULD BE INDICATIVE THAT THE COMPARABLES SELECTED ARE EITHER MATERIALLY DISSIMILAR OR THE DATA USED IS NOT RELIABLE. THE HON 'BLE HIGH COURT IN (HE DECISION NOTED THE FINDINGS OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OFMAERSK GLOBAL CENTRES (INDIA) PVT. LTD. WHEREIN IT WAS NOTED THAT ECLERX SERVICES IS ENGAGED IN DATA ANALYTICAL, DATA PROCESSING SERVICES, PRICING ANALYTICS, BUNDLING OPTIMIZATION, CONTENT OPERATION, SALES AND MARKETING SUPPORT, PRODUCT DATA MANAGEMENT, REVENUE MANAGEMENT. FURTHERMORE IT IS NOTED THAT ECLERX SERVICES ALSO OFFERED FINANCIAL SERVICES SUCH AS REAL - TIME CAPITAL MARKETS, MIDDLE AND BACK - OFFICE SUPPORT, PORTFOLIO RISK MANAGEMENT SERVICES AND VARIOUS CRITICAL DATA MANAGEMENT SERVICES. 14. THE OBSERVATION OF THE LEARNED DRP TH AT ASSESSEE AND ECLERX SERVICES ARE KPOS AND HENCE COMPARABLE IS ALSO NOT SUSTAINABLE. THE HON 'BLE DELHI HIGH COURT IN THE CASE OF ACTIS GLOBAL SERVICES PRIVATE LIMITED (SUPRA) HAD HELD THAT EVEN THOUGH BOTH BEING KPOS TWO ENTITIES ARE NOT COMPARABLE IF T HEY WERE CATERING TO DIFFERENT TYPES OF BUSINESS. 15. FROM THIS IT IS AMPLY CLEAR THAT THE SAID DIVERSE ACTIVITIES ARE NOT COMPARABLE WITH THE SERVICE OF PROVIDING ANALYTICAL SOLUTION RENDERED BY THE ASSESSEE. MOREOVER THOUGH SOME FUNCTIONS ARE SIMILAR, T HERE ARE LOT OF OTHER FUNCTIONS BY M/S.ECIERX SERVICES WHICH ARE NOT DONE BY THE ASSESSEE. HENCE, ABSENCE OF SEGMENTAL DATA MAKE COMPARABILITY NOT FEASIBLE. IN THESE CIRCUMSTANCES AND IN THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE CONSIDERING THE PRECEDENT S AS ABOVE, WE ARE OF THE CONSIDERED OPINION THAT ECLERX SERVICES IS NOT COMPARABLE IN THIS CASE TO THAT OF THE ASSESSEE BECAUSE OF DIVERSE NATURE OF ITS FUNCTIONS. A LARGE NUMBER OF THEM ARE DISSIMILAR TO THAT OF THE ASSESSEE AND THE FACT THAT PROPER SEGM ENTAL DATA ARE NOT AVAILABLE. HENCE, HOLDING THAT ECLERX SERVICES CANNOT BE TAKEN AS A COMPARABLE IN THIS REGARD, WE REMIT THE ISSUE TO THE TPO TO MAKE THE COMPUTATION AFRESH AFTER EXCLUDING ECLERX SERVICES AS A COMPARABLE, AND MAKING FURTHER - COMPUTATION A S PER LAW. IN VIEW OF THE ABOVE PRECEDENT, WE ALLOW THE GRIEVANCE OF THE ASSESSEE AND H O LD THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERENT. 12 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. C) ACCENTIA TECHNOLOGIES LTD . : IN THIS REGARD , TH E ASSESSEE'S OBJECTION AGAINST THIS COMPARABLE SELECTION IS THAT IT IS ENGAGED IN PROVIDING SOFTWARE SERVICES AND SINCE THE TPO HIMSELF HAS REJECTED OTHER CASES THAT ARE ENGAGED IN SOFTWARE BUSINESS, THIS CASE ALSO SHOULD BE EXCLUDED ON THE PRINCIPLE OF CONSISTENCY. THE ASSESSEE HAS ALSO REFERRED TO THE FACT THAT THIS C OMPANY IS CONCENTRATING ON HEALTH CARE, RECEIVABLE CYCLE MANAGEMENT, WHICH ARE NOT SIMILAR TO THE ASSESSEE'S ACTIVITIES. THE DRP IN THIS REGARD REJECTED THE ASSESSEES CONTENTION AND GAVE THE FOLLOWING DIRECTIONS: THE ASSESSEE CONTESTS ON THE GROUND THAT SEGMENTAL DATA ARE NOT AVAILABLE. THE SUPPORT SERVICES PROVIDED BY THE COMPANY ARE CLASSIFIED UNDER BPO/ITES. IT IS ALSO SEEN FROM THE ANNUAL REPORT OF THE COMPANY THAT INCOME FROM ITES IS 78.72% OF TOTAL OPERATIONAL REVENUE, RURTHER, IN CASE OF M/S WILLI S PROCESSING SERVICES (INDIA) PVT LTD IN ITA NO.4547/MUM/2012 IN PARA 18, AS WELL AS DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF ACTIS ADVISORS PVT LTD IN ITA NO. 5277/DEL/2011 HAVE ACCEPTED THIS AS A COMPARABLE. HENCE, THE CLAIM OF THE ASSESSEE IS REJECT ED AND THE ACTION OF TPO IS UPHELD IN THIS CASE. THE LD. COUNSEL OF THE ASSESSEE IN THIS REGARD SUBMITTED THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PTC SOFTWARE (I) PVT. LTD (SUPRA) HAS UPHELD THE EXCLUSION OF ACCENTIA TECHNOLOGIES LTD . ON THE GROUND OF IT BEING FUNCTIONALLY DIFFERENT INASMUCH AS IT DEVELOPS ITS OWN SOFTWARE AND RENDER MEDICAL TRANSCRIPTION SERVICES AND T HAT PROFIT OF ACCENTIA TECHNOLOGIES LTD INCLUDED EXTERNAL EVENT OF MERGER AND AMALGAMATION. THE HONBLE HIGH COURT HAS HE LD AS UNDER: (I) THE IMPUGNED ORDER OF THE TRIBUNAL HAS EXCLUDED M/S. ACCENTIA TECHNOLOGIES LTD., FROM THE LIST OF COMPARABLES TO DETERMINE THE ALP OF THE RESPONDENT'S TRANSACTIONS. 13 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. (II) THE IMPUGNED ORDER RENDERS A FINDING OF FACT THAT THE NATURE OF ACTIVITIES CARRIED OUT BY M/S. ACCENTIA TECHNOLOGIES LTD., ARE DIFFERENT FROM THAT CARRIED OUT BY RESPONDENT. M/S. ACCENTIA TECHNOLOGIES LTD., DEVELOPES ITS OWN SOFTWARE AND RENDERED MEDICAL TRANSCRIPTION SERVICES WHILE THE RESPONDENT IS PROVIDING BPO SERV ICES. BESIDES, THE IMPUGNED ORDER OF THE TRIBUNAL HELD THAT HIGH PROFIT MARGINS OF M/S. ACCENTIA TECHNOLOGIES LTD., WAS ATTRIBUTABLE TO AMALGAMATION WHICH TOOK PLACE IN THE PREVIOUS YEARS RELEVANT TO SUBJECT ASSESSMENT YEAR. THEREFORE, NO T COMPARABLE. (III) IN FACT, THIS COURT IN GIT V/S. APTARA TECHNOLOGY LTD., (INCOME TAX APPEAL NO. 1209 OF 2015) HAS UPHELD THE VIEW OF THE TRIBUNAL IN NOT ACCEPTING THE ACCENTIA TECHNOLOGIES LTD., AS C OMPARABLE, INTER ALIA, ON ACCOUNT OF FACT THAT EXTRA ORDINARY EVENT SUCH AS MERGER/ AMALGAMATION WOULD AFFECT THE PROFITABILITY OF M/S. ACCENTIA TECHNOLOGIES LTD., THUS, MAKING IT INCOMPARABLE. (IV) FURTHER, IN THAT CASE, AS IN THIS CASE, THE TRIBUNAL H AS ALSO RECORDED A FINDING OF FACT THAT THE / ACTIVITIES OF M/S. ACCENTIA TECHNOLOGIES LTD., AND THE RESPONDENT ARE DIFFERENT. THUS, NOT COMPARABLE. THE ABOVE FINDING OF FACT IS NOT SHOWN TO BE PERVERSE. (V) IN THE ABOVE VIEW, THE QUESTION AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. IN VIEW OF THE ABOVE DECISION OF THE HONBLE HIGH COURT, WE ALLOW THE GRIEVANCE OF THE ASSESSEE AND HOLD THAT THIS COMPARABLE IS NOT VALID IN THE PRESENT COMPARABILITY ANALYSIS. D) COSMIC GLOBAL LTD. : THIS COMPANY WAS PART OF THE ASSESSEES COMPARABLE SET AS ALSO THE TPOS COMPARABLE SET. HOWEVER, THE ASSESSEE HAS ARGUED FOR EXCLUSION OF THE SAME BEFORE THE DRP BY CONTENDING THAT THE BUSINESS MODEL OF THIS COMPANY IS DIFFERENT AS I T OUTSOURCES THE SIGNIFICANT PART O F ITS ACTIVITY WHERE AS THE ASSESSEE PERFORMS THE SAME BY EMPLOYING ITS OWN MANPOWER. THE ASSESSEE HAS ALSO SUBMITTED THAT THIS COMPANY HAS ABNORMAL PROFITS AND HENCE RELYING ON VARIOUS DECISION OF ITAT ARGUED FOR ITS EXC LUSION. 14 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. THE DRP REJECTED THE ASSESSEES CONTENTION IN THIS REGARD AND GAVE THE FOLLOWING DIRECTIONS: IN THIS CASE THE ASSESSEE HAS SUBMITTED THAT THE SAID COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. THE ASSESS EE'S SUBMISSION HAS BEEN CONSIDERED. AN EXAMINATION OF THE ANNUAL REPORT OF THIS COMPANY REVEALS THAT THE COMPANY ITSELF CONSIDERS F ITSELF AS BEING ENGAGED IN IT ENABLED SECTOR. IN THIS CONNECTION THE FOLLOWING REMARK IN THE ANNUAL REPORT IS EXT RACTED. 'THE REVIEW OF PERFORMANCE AND BUSINESS PROSPECT. THE COMPANY DURING THIS FINANCIAL YEAR HAS ACHIEVED GROWTH BY TAPPING THE IT ENABLED TRANSLATION SERVICES AND EARNED THE OPTIMUM PROFIT. THE COMPANY IS TRYING TO EXPAND THE CUSTOMER BASE BY THE SPEC IALISATION IN TRANSLATION SERVICES AND ALSO PURSUING THEIR IT ENABLED SERVICES SUCH AS BPO SERVICES AND TRIES TO ESTABLISH A BRAND IN THIS FIELD' 3.5.2.1 FROM THE ABOVE IT IS CLEAR THAT COSMIC GLOBAL LTD OPERATES IN THE IT ENABLED SEGMENT JUST LIKE THE ASS ESSEE. THE TRANSLATION SERVICES PROVIDED BY THE COMPANY ARE BASED ON THE USAGE OF SPECIALISED SOFTWARE JUST AS ONE USES CAD/CAM FOR ENGINEERING DRAWING PURPOSES. FURTHER THERE IS NO OUTSOURCING OF TRANSLATION WORK AS EVIDENT FROM THE ABOVE DESCRIPTION. THE ASSESSEE'S CONTENTION IS HENCE REJECTED AND THIS COMPANY IS TO BE IN THE INCLUDED IN THE COMPARABLE SET. AS FAR AS THE ASSESSEE IS CONCERNED, THE FUNCTIONS PERFORMED BY COSMIC GLOBAL LTD AS INDICATED IN THE ANNUAL REPORT IS COMPARABLE TO THAT OF THE ASSES SEE. FURTHER, THE ARGUMENT OF REJECTION ON THE BASIS OF A DIFFERENT BUSINESS MODEL HAS BEEN SUITABLY REBUTTED IN THE CASE OF AGILENT TECHNOLOGIES IN ITA NO.6047/DEL/2012 RELYING ON THE DECISION OF COORDINATE DELHI BENCH IN THE CASE OF RAMGREEN SOLUTIONS PR IVATE LIMITED VS. ACIT VIDE ORDER DATED 22.3.2013 IN I.T.A. NO. 6286/DEL/2012 (A.Y. 2008 - 09 (SUPRA) AT PARAS 38 TO 41 OF THE ORDER. FOR ALL THESE REASONS THE SAID COMPANY MUST BE RETAINED AS A PART OF THE COMPARABLE SET. AS A MATTER OF FACT THIS CASE WAS P ART OF ASSESSEE'S COMPARABLE SET AND HENCE, THE TPO HAS NOT GONE INTO DETAILED ANALYSIS. SO THERE IS NO REASON TO NOW EXCLUDE THE SAME. HENCE, THE SAID COMPANY NEEDS TO CONSIDERED FOR COMPARATIVE ANALYSIS. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE R EFERRED TO THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PTC SOFTWARE (I) PVT. LTD (SUPRA), WHEREIN THIS COMPANY WAS HELD TO BE OUT SOURCING ITS SERVICES AND HENCE COULD NOT BE CONSIDERED AS CO MPARABLE. HENCE, IT WAS HELD TO BE FUNCT IONALLY DISSIMILAR. PER CONTRA, THE LD.DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 15 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. UPON CAREFUL CONSIDERATION, WE NOTE THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE ABOVE CASE HAS DECIDED THIS ISSUE AS UNDER: (II) COSMIC GLOBAL LTD (I) THE IMPUGNED ORDER OF THE TRIBUNAL RECORDS THE FACT THAT COSMIC N GLOBAL LTD., HAD OUTSOURCED ITS SERVICES TO VENDORS JUST AS M/S. VISHAL TECHNOLOGIES LTD., HAD DONE. IN THE ABOVE FACTS, THE IMPUGNED ORDER HELD THAT COSMIC GLOBAL LTD., IS NOT FUNCTIONA LLY COMPARABLE AND, THEREFORE, COULD NOT BE INCLUDED AMONGST THE COMPARABLES TO DETERMINE THE ALP OF THE RESPONDENT'S TRANSACTIONS. (II) THE AFORESAID FINDING OF FACT BY THE TRIBUNAL HAS NOT BEEN SHOWN TO BE PERVERSE. IN FACT, THE REASONS INDICATED IN THE IMPUGNED ORDER TO HOLD THAT VISHAL TECHNOLOGIES LTD., IS NOT A COMPARABLE, WOULD EQUALLY APPLY TO M/S. COSMIC GLOBAL LTD., (III) THUS, THE SUB - QUESTION (II) AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. (I II) ACCORDINGLY, THE QUESTION AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND HOLD THAT THIS COMPANY IS NOT A VALID COMPARABLE. IN REVENUES APPEAL, THE DRP'S DIRECTION TO EXCLUDE FOLLOWING COMPARABLE HAS BEEN CHALLENGED. THE LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND SUPPORTS THE DRP'S DIRECTION. E) EXCEL INFOWAYS LTD.: IN THIS REGARD, THE DRP OBSERVED THAT T HE ASSESSEE HAS S UBMITTED THAT THIS COMPANY IS ENGAGED IN VOICE BASED SERVICES IN TH E AREA OF COLLECTION, TELEMARKETING AND CUSTOMER CARE AND HENCE THE SAME SHOULD NOT BE CONSIDERED AS A COMPARABLE PARTICULARLY BECAUSE THE PROFIT FLUCTUATION IS VERY HIGH IN TELEMARKETING B USINESS. THE ASSESSEE HA D FURTHER SUBMITTED THAT THIS COMPANY HAS EARNED SUPER NORMAL PROFITS AND FOR THAT REASON ALSO THE SAME IS NOT COMPARABLE TO THE ASSESSEE. 16 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. THE DRP UPHELD THE ASSESSEES SUBMISSIONS AND DIRECTED AS UNDER: HAVING REGARD TO THE VARIOUS DECISIONS OF 1TAT RELIED UPON BY THE ASSESSEE WHEREIN CASES OF SUPER NORMAL PROFITS HAVE BEEN EXCLUDED FROM THE COMPARABLE SET, THE ASSESSEE'S ARGUMENT IS ACCEPTED AND THE TPO IS DIRECTED TO EXCLUDE EXCEL I NFOWAYS FROM THE COMPARABLE SET. IN THIS CONNECT ION, THE LD. DR RELIED UPON THE ORDER OF THE TRANSFER PRICING OFFICER (TPO' FOR SHORT) . PER CONTRA, THE LD. COUNSEL OF THE ASSESSEE SUPPORTED THE ORDER OF THE DRP. HE FURTHER REFERRED TO ITAT SUCH DECISION IN THE CASE OF BAXTER INDIA PVT. LTD. VS. ACIT (IN ITA NO. 6158/DEL/2016 VIDE ORDER DATED 24.08.2017 FOR THE FOLLOWING PROPOSITION : 24. SO FAR AS EXCLUSION OF EXCEL INFOWAYS LTD. IS CONCERNED, WE ALSO FIND MERIT IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ABOVE COMPANY SHOULD BE E XCLUDED FROM THE LIST OF COMPARABLES. THIS COMPANY FAILS TPO'S OWN FILTER OF DIMINISHING REVENUE AND ABNORMAL VOLATILITY IN REVENUE AND MARGINS. WE FIND FROM THE ORDER OF THE TPO AT PARA 7.5 (PAGE 24 - 25 OF THE TPO ORDER) WHERE THE TPO HAS OBSERVED THAT T HE DEPARTMENT HAS APPLIED CONSISTENT DIMINISHING REVENUE/ LOSS MAKING FILTER WHEREIN THE COMPANIES WITH LOSSES/ DIMINISHING REVENUE FOR THE LAST THREE YEARS UPTO AND INCLUDING THE FINANCIAL YEAR 2010 - 11 WERE REJECTED AS COMPARABLES. THE DEPARTMENT HAS EXCL UDED SUCH COMPANIES WITH CONSISTENT LOSSES/ DIMINISHING REVENUE IN AN ENVIRONMENT WHERE INDIAN ECONOMY IS GROWING AT CONSISTENT RATE. HAVING HELD SO, THE ASSESSING OFFICER INCLUDED EXCEL INFOWAYS LTD. AS A COMPARABLE WITHOUT CONSIDERING THE FACT THAT THE S AID COMPANY DOES NOT PASS THE DIMINISHING ITA NO.6158/DEL/2016 REVENUE FILTER. FROM THE SUBMISSIONS OF THE ASSESSEE BEFORE THE TPO (AT PAGE 232 OF VOLUME - I OF THE PAPER BOOK) WE FIND THE DETAILS OF THE OPERATING MARGIN OF THE COMPANY FROM FINANCIAL YEARS 2009 - 10 TO 201 - 15 ARE AS UNDER : - PARTICULARS FINANCIAL YEAR 2009 - 10 (INR'000) 2010 - 11 (INR'000) 2011 - 12 (INR'000) 2012 - 13 (INR'000) 2013 - 14 (INR'000) 2014 - 15 (INR'000) REVENUE 204,161.34 203,526.39 79,096.95 76,098.54 52,792.12 22,994.38 OPERATING COST 43,986.99 50,751.24 55,991.57 47,539.99 41,355.78 22,895.57 OPERATING PROFIT 160,174.35 152,775.14 23,105.38 28,558.55 11,436.34 98.81 OP/OC (%) 364.14% 301.03% 41.27% 60.07% 22.65% 0.43% 25. FROM THE ABOVE, IT IS CLEAR THAT ABOVE COMPANY DOES NOT PASS THE DIMINISHING REVENUE FILTER AS ADOPTED BY THE TPO HIMSELF SINCE ITS REVE NUE HAS DECREASED 17 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. CONSISTENTLY FROM FINANCIAL YEARS 2009 - 10 TO 2011 - 12 I.E. INCLUDING THE YEAR UNDER CONSIDERATION. FURTHER, THE ABOVE COMPANY HAS SUPER NORMAL PROFITS. WE FURTHER FIND THE SUBMISSIONS OF THE ASSESSEE THAT EXCEL INFOWAYS LTD. HAS SUPER NORM AL PROFITS DURING THE CURRENT YEAR HAS NOT BEEN CONTROVERTED BY THE REVENUE. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL THE CASE OF DCIT VS. WILLIS PROCESSING SERVICES (INDIA) PVT. LTD. VIDE ITA NO.2152/MUM/2014 HAS UPHELD THE ORDER OF THE DRP REJECTING EXCE L INFOWAYS LTD. AS COMPARABLE COMPANY ON THE GROUND THAT THE COMPANY HAS A SUPER NORMAL PROFIT OF 203.80% AND LOW EMPLOYEE COST 10.02%. WE, THEREFORE, FIND MERIT IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT EXCEL INFOWAYS LTD. SHOULD BE EXCL UDED FROM THE LIST OF COMPARABLE ON ACCOUNT OF SUPER NORMAL PROFIT OF THE SAID COMPANY IN THE PRECEDING YEAR. ITA NO.6158/DEL/2016 25.1 FURTHER, FROM THE ORDER OF THE TPO WE FIND HE HAS OBTAINED THE EMPLOYEE COST AND THE SALE FOR THE ITES SEGMENT BY EXERCI SE OF HIS POWERS U/S 133(6), WHEREIN THE SAID COMPANY HAS ALLOCATED ENTIRE EMPLOYEE COST TO IT - BPO SEGMENT WITH NO ALLOCATION TO INFRA ACTIVITY SEGMENT WHICH ACCOUNTS TO 49% OF EXCEL'S TOTAL REVENUE. IN OUR OPINION, IT IS HIGHLY IMPRACTICAL THAT NO EMPLO YEE HAS BEEN HIRED BY EXCEL FOR INFRA ACTIVITY SEGMENT. WE, THEREFORE, FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE INFORMATION PROVIDED AS PER SECTION 133(6) BY EXCEL INFOWAY S LTD. IS UNRELIABLE AND SHOULD NOT BE USED TO COMPUTE EMPLOYEE COST FOR ITES SEGMENT. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA SOLUTIONS INDIA PRIVATE LIMITED VIDE ITA NO.5637/DEL/2011 HAS HELD THAT A COMPANY SHOULD BE REJECTED AS COMPARABL E IN CASE THERE IS CONTRADICTION IN THE FACTS OR DATA SOURCED FROM ANNUAL REPORT AND AS PER THE INFORMATION GATHERED U/S 133(6). IN VIEW OF ABOVE DISCUSSION, WE HOLD THAT EXCEL INFOWAYS LTD. CANNOT BE CONSIDERED AS COMPARABLE AND SHOULD BE EXCLUDED FROM TH E LIST OF COMPARABLES. WE HOLD AND DIRECT ACCORDINGLY. IN VIEW OF THE ABOVE DISCUSSION AND PRECEDENT, WE UPHOLD THE INCLUSION OF THIS COMPARABLE. 9 . ON THE BASIS OF THE ABOVE DISCUSSION, THE DIRECTION OF THE DRP WITH REGARD TO THE INCLUSION AND EXCLUSION OF COMPARABLES IS MODIFIED AS UNDER: COMPARABLES TO BE EXCLUDED WHICH HAVE BEEN DIRECTED BY THE DRP TO BE INCLUDED AS CANVASSED BY THE LD. COUNSEL OF THE ASSESSEE : A) CORAL HUBS LTD. B) ECLERX SERVICES LTD. 18 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. C) ACCENTIA TECHNOLOGIES LTD. D) COSMIC GLOBAL LTD. OUT OF REVENUES GRIEVANCE AGAINST THE LD. CIT(A)S DIRECTION FOR EXCLUSION OF CERTAIN COMPARABLE, T HE DRP'S DIRECTION REGARDING THE EXCLUSION OF FOLLOWING COMPARABLE IS UPHELD AS CANVASSED BY THE LD. COUNSEL OF THE ASSESSEE. EXCEL INFOWAYS LTD. 1 0 . AS REGARDS THE ISSUE OF WRITE OFF OF FIXED ASSETS AS NON OPERATING EXPENDITURE, THE DRP OBSERVED AS UNDER: WRITE OFF OF FIXED ASSSETS IS A NON OPERATING ITEM AND HENCE SHOULD BE EXCLUDED FROM THE CALUCULATION OF THE OPERATING PROFIT MARGIN. IN THE EVEN T THERE IS SIMILAR WRITE OFF FIXED ASSETS IN ANY OF THE COMPARABLES FINALLY CONSIDERED, THE TPO IS DIRECTED TO EXCLUDE SUCH COSTS FROM THE COMPARABLES ALSO TO RETAIN CONSISTENCY. 1 1 . AGAINST THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 1 2 . WE HAVE H EARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE ITEM OF FIXED ASSETS WRITE OFF IS NOT A NORMAL EXPENDITURE. IT CAN NOT BE EQUATED WITH DEPRECIATION. H ENCE, THE DIRECTION OF THE DRP THAT THE SAME IS NON OPERATING ITEM AND SHOULD BE EXCLUDED FROM THE CALCULATION OF THE PROFIT MARGIN, IS LIABLE TO BE SUSTAINED. FURTHERMORE, THE DRP HAS DIRECTED THAT IF THERE IS SIMILAR WRITE OFF OF FIXED ASSETS IN ANY OF THE COMPARABLES FINALLY CONSIDERED, THE TPO IS DIRECTED TO EXCLUDE SUCH COSTS FROM THE COMPARAB LES ALSO . THUS , IN OUR CONSIDERED OPINION, IS FA I R AND REASONABLE DIRECTION AND DOES NOT NEED ANY IN TER FERENCE IN OUR PART. 19 ITA NO.1465/MUM/2014 M/S. SWISS RE - SERVICES INDIA PVT. LTD. 1 3 . IN THE RESULT, THE APPEALS BY THE ASSESSEE AND THE R EVENUE STAND PARTLY ALLOWED AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31.08.2018 SD/ - SD/ - ( SANDEEP GOSAIN ) (S HAMIM YAHYA) J UDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI ; DATED : 31.08.2018 ROSHANI , SR. PS 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 F ILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI