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

ITA 1559/BANG/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95305 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R REDDY CIT I
• Keywords: Transfer pricing
• Section: 143(3); 244A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER IT(TP)A NO.1559/BANG/2012 ASSESSMENT YEAR : 2008-09 FLEXTRONICS TECHNOLOGIES (INDIA) PRIVATE LTD., PLOT NO.3, PHASE II, SIPCOT INDUSTRIAL PARK, SANDAVELLURE C VILLAGE. 602 106. SRIPERUMBUDUR TALUK, KANCHEEPURAM DISTRICT. TAMIL NADU. PAN: AAACF 5248E VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI AJIT KUMAR JAIN, CA RESPONDENT BY : SHRI G.R. REDDY, CIT-I (DR) DATE OF HEARING : 05.10.2015 DATE OF PRONOUNCEMENT : 23.10.2015 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS ORDER IS AGAINST THE ASSESSMENT ORDER DATED 27.09.2012 PASSED U/S. 143(3) R.W.S. 144C OF THE INCOME-TAX AC T, 1961 ['THE ACT]. IT(TP)A NO.1559/BANG/2012 PAGE 2 OF 23 2. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RE OF PRINTED CIRCUIT BOARD ASSEMBLY WHICH HAS APPLICATION IN THE TELECOM, INDUSTRIAL ELECTRONICS AND CONSUMER PRODUCTS SEGMENT. IT ALSO OPERATED A SHARED SERVICES DIVISION FOR PROVIDING BACK OFFICE SERVICE S RELATING TO ACCOUNTS PAYABLE PROCESSING AND HUMAN RESOURCES RECORD MAINT ENANCE. 3. IN THE TP STUDY OF THE TAXPAYER IT HAS BEEN STAT ED THAT THE SEARCH OF THE DATABASES YIELDED A SET OF 7 COMPARABLES WITH A N AVERAGE PROFIT MARGIN @ 7.56% ON COST. THE MARK-UP ON TOTAL COST OF THE TAXPAYER IS ARRIVED AT 8.30% ON COST. AS THE PROFIT MARGIN EARNED BY THE TAXPAYER IS MORE THAN THE ARITHMETICAL MEAN MARGIN, THE PRICE CHARGED BY THE TAXPAYER WAS TREATED AS AT ARMS LENGTH. 4. THE TPO SELECTED THE FINAL SET OF COMPARABLES AS FOLLOWS:- SL. NO. NAME OF THE COMPANY OP/TC % 1 ACCENTIA TECHNOLOGIES LTD. (SEG) 41.77 2 ACROPETAL TECHNOLOGIES LTD. (SEG) 35.30 3 ADITYA BIRLA MINACS WORLDWIDE LTD. (EARLIER KNOWN AS TRANSWORKS INFORMATION SERVICES LTD.) - 4.00 4 ASIT C MEHTA FINANCIAL SERVICES LTD. (SEG.) 9.42 5 CALIBER POINT BUSINESS SOLUTIONS LTD. 10.97 6 CORAL HUBS LTD. (EARLIER KNOWN AS VISHAL INFORMAT ION TECHNOLOGIES LTD.) 50.68 7 COSMIC GLOBAL LTD. 23.30 8 CROSSDOMAIN SOLUTIONS LTD. 27.03 9 DATAMATICS FINANCIAL SERVICES LTD. (SEG.) 29.11 10 E4E HEALTHCARE SOLUTIONS LTD. (FORMERLY KNOWN AS NITTANY OUTSOURCING SERVICES PVT. LTD.) 18.54 11 ECLERX SERVICES LTD. 58.80 12 GENESYS INTERNATIONAL CORPORATION LTD. 47.40 13 INFOSYS BPO LTD. 19.66 14 ISERVICES INDIA PVT. LTD. 10.77 IT(TP)A NO.1559/BANG/2012 PAGE 3 OF 23 15 JINDAL INTELLICOM PVT. LTD. - 10.29 16 MOLD-TEK TECHNOLOGIES LTD. 96.66 17 R SYSTEMS INTERNATIONAL LTD. (SEG.) 4.30 18 SPANCO LTD. (SEG.) [EARLIER KNOWN AS SPANCO TELE SYSTEMS & SOLUTIONS LTD.) 8.81 19 WIPRO LTD. (SEG.) 30.05 20 ALLSEC TECHNOLOGIES LIMITED - 13.29 AVERAGE 24.75 5. THE TPO ALSO HELD THAT OUT OF COMPARABLES SELECT ED BY THE ASSESSEE, THE FOLLOWING 5 COMPARABLES ARE FOUND TO BE SUITABLE FOR COMPARISON AFTER DETAILED ANALYSIS, WHICH ARE AS FO LLOWS:- SL. NO. NAME OF THE COMPANY OPERATING MARGIN TO COST (FY 2007-08) 1 DATAMATICS FINANCIAL SERVICES LTD. (SEG.) 29.11 2 COSMIC GLOBAL LTD. 23.30 3 ALLSEC TECHNOLOGIES LTD. - 13.29 4 R SYSTEMS INTERNATIONAL LTD. (SEG.) 4.30 5 ADITYA BIRLA MINACS WORLDWIDE LTD. (EARLIER KNOWN AS TRANSWORKS INFORMATION SERVICES LTD.) - 4.00 6. THE AVERAGE OF 20 COMPARABLES SELECTED BY THE TP O WORKED OUT 24.75. THE TPO COMPUTED THE WORKING CAPITAL ADJUST MENT AT 2.28%. THE ARMS LENGTH MARGIN WAS WORKED OUT AT 122.47% OF TH E OPERATING COST. THE TPO TREATED THE SHORTFALL OF RS.8,38,77,257 AS TRAN SFER PRICING ADJUSTMENT U/S. 92CA OF THE ACT IN THE SOFTWARE SEGMENT. 7. AGGRIEVED BY THE ORDER OF THE TPO, THE ASSESSEE PREFERRED APPEAL BEFORE THE DRP. IT(TP)A NO.1559/BANG/2012 PAGE 4 OF 23 8. THE ASSESSING OFFICER WHILE PASSING THE ORDER U/ S. 143(3) R.W.S. 144C OF THE ACT HELD AS UNDER:- COMPUTATION OF TOTAL INCOME INCOME FROM DOMESTIC UNIT (-) RS. 16,79,73,284 INCOME FROM SEZ UNIT (-) RS. 61,83,93,228 ------------------------- (-) RS.78,63,66,512 LESS: PROFIT OF 10A UNIT RS. 6,08,92,020 ------------------------- (-) RS.72,54,74,492 LESS: PROFIT OF SEZ UNIT RS. 1,56,95,405 ------------------------- (-) RS.70,97,79,087 ADD: ADJ. U/S. 92CA RS. 8,38,77,257 INCOME FROM OTHER SOURCES RS. 3,21,878 ------------------------- TOTAL INCOME (-) RS.62,55,79,952 ------------------------- TAX THEREON RS. NIL LESS: TDS RS.59,46,764 ---------------- REFUND DUE RS.59,46,764 ADD: INT. U/S 244A RS.12,43,973 ---------------- REFUNDABLE RS.71,90,737 LESS: RO ALREADY ISSUED RS.71,90,737 9. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 10. THE ASSESSEE HAS FILED CONCISE GROUNDS OF APPEA L AND THE SAME ARE TAKEN UP FOR CONSIDERATION. GROUND NOS. 1, 3.1 & 3 .2 ARE GENERAL IN NATURE. GROUND NOS. 2, 3.3, 3.4, 3.5, 3.7 & 3.8 ARE NOT PRE SSED. GROUND NOS.3.9 AND 4 ARE CONSEQUENTIAL GROUNDS. IT(TP)A NO.1559/BANG/2012 PAGE 5 OF 23 11. GROUND NO.3.6 READS AS FOLLOWS:- 3. THE HONOURABLE DRP AND THE LEARNED AO HAVE ERRE D IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE TR ANSFER PRICING OFFICER (TPO) IN MAKING AN ADJUSTMENT AMOUNTING T O RS.83,877,257 TO THE TOTAL INCOME OF THE APPELLANT, AND UPHOLDING THE ARMS LENGTH PRICE (ALP) MARGIN OF 22.47 PERCENT AS DETERMINED BY THE TPO AS AGAINST THE ALP OF 7.56 PERCENT AS DETERMINED BY THE APPELLANT. IN DOING S O, THE HONOURABLE DRP AND LEARNED AO HAVE ERRED IN UPHOLDI NG THE FOLLOWING ACTION OF THE TPO: 3.6 FINALIZING THE TRANSFER PRICING ORDER BY APPLYI NG CERTAIN FILTERS FOR SELECTION OF COMPARABLE COMPANIES AND I N THE PROCESS SELECTING COMPARABLE COMPANIES WHICH FAIL T HE TEST OF COMPARABILITY AS PER THE TP REGULATIONS; 12. THE LD. COUNSEL FOR THE ASSESSEE, SHRI AJAY JAI N, SUBMITTED A CHART AND STATED THAT ACCENTIA TECHNOLOGIES LTD. IS UNCOM PARABLE AS ITS FINANCIAL RESULTS ARE ARISING OUT OF AMALGAMATION. HE RELIED ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. V. ITO, IT(TP)A NO.1316/B ANG/2012, ORDER DATED 14.08.2013 (AY 2007-08), WHEREIN IT HAS BEEN HELD AS FOLLOWS: - (1) ACCENTIA TECHNOLOGIES LTD. (SEG.) 10. THIS WAS CONSIDERED AS A COMPARABLE BY THE TPO AND LISTED AT SL.NO.1 OF THE COMPARABLE COMPANIES CHOSE N BY THE TPO. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATT ENTION TO THE FACT THAT THERE ARE EXTRA ORDINARY EVENTS THAT OCCU RRED DURING THE PREVIOUS YEAR IN THIS COMPANY. OUR ATTENTION WAS D RAW TO THE ANNUAL REPORT OF THIS COMPANY FOR THE A.Y. 2007-08 WHEREIN THE FACT THAT THIS COMPANY HAD ACQUIRED THUNGA SOFTWARE PVT. LTD., GSR PHYSICIANS BILLING SERVICES INC., GSR SYSTEMS I NC. AND DENMED INC. IS MENTIONED. OUR ATTENTION WAS ALSO D RAWN TO THE DECISION OF THE HYDERABAD ITAT BENCH IN THE CASE OF CAPITAL IQ IT(TP)A NO.1559/BANG/2012 PAGE 6 OF 23 INFORMATION SYSTEMS INDIA PVT. LTD. V. DCIT [ 2013] 32 TAXMAN.COM 21 (HYD. TRIB). IN THE AFORESAID DECISION, THE HYDERABAD BENCH OF THE TRIBUNAL HAD TO DEAL WITH A CASE OF DETERMINATION OF ALP IN THE CASE OF AN ASSESSEE WHO WAS PROVIDING ITES BUSINESS SUPPORT SERVICES FOR THE A. Y. 2007-08. THE TPO HAD CONSIDERED ACCENTIA TECHNOLOGIES LTD. A S A COMPARABLE. THE DRP HOWEVER HELD THAT THE SAID COM PANY CANNOT BE COMPARED AS A COMPARABLE OWING TO EXTRA O RDINARY EVENTS THAT TOOK PLACE DURING THE PREVIOUS YEAR. TH E TRIBUNAL UPHELD THE ORDER OF THE DRP OBSERVING AS FOLLOWS:- I. ACCENTIA TECHNOLOGIES LTD. 10. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE BECAUSE O F UNCOMPARABLE FINANCIAL RESULTS ARISING OUT OF AMALGAMATION IN THE COMPANY. IN THIS REGARD, THE ASSESSEE HAS RELIED UPON THE ORDER OF THE DRP FOR T HE ASSESSMENT YEAR 2008-09 IN ASSESSEE'S OWN CASE. IT IS SEEN THAT THE DRP WHILE CONSIDERING SIMILAR OBJECTI ON PLACED BY THE ASSESSEE IN THE CASE OF ANOTHER COMPA NY, VIZ. MOLD TEK TECHNOLOGIES LTD., IN THE PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2008-09, HAS OBSERV ED IN THE FOLLOWING MANNER- '17.5. IN ADDITION TO THE ABOVE, THE DIRECTOR'S REP ORT OF THE COMPANY FOR THE FY 2007-08 REVEALED THE MERGER AND THE DEMERGER. A COMPANY KNOWN AS TECHMEN TOOLS PVT. LTD. HAD AMALGAMATED WITH MOLD-TEK TECHNOLOGIES LTD. WITH EFFECT FORM 1ST OCTOBER, 2006. THERE WAS A DE-MERGER OF PLASTIC DIVISION OF THE COMPANY AND THE RESULTING COMPANY I S KNOWN AS MOLDTEK PLASTICS LIMITED. THE DE-MERGER FROM THE MOLDTEK TECHNOLOGIES TOOK PLACE WITH EFFECT FROM 1ST APRIL, 2007. THE MERGER AND THE DE- MERGER NEEDED THE APPROVAL OF THE HON'BLE HIGH COURT OF ANDHRA PRADESH AND ALSO THE APPROVAL OF TH E SHAREHOLDERS. THE SHAREHOLDERS OF THE COMPANY GAVE APPROVAL FOR THE MERGER AND THE DE-MERGER ON 25.01.2008 AND THE HON'BLE HIGH COURT OF ANDHRA PRADESH HAD APPROVED THE MERGER AND DE-MERGER ON 25TH JULY, 2008. SUBSEQUENTLY, THE ACCOUNTS OF MOLDTEK TECHNOLOGIES FOR FY 2007-08 WERE REVISED. ON A PERUSAL OF THE ANNUAL REPORT IT IS NOTICED THA T IT(TP)A NO.1559/BANG/2012 PAGE 7 OF 23 TECKMEN TOOLS PVT. LTD. AND THE PLASTIC DIVISION OF THE COMPANY WERE DEMERGED AND THE RESULTING COMPANY WAS NAMED AS MOLDTEK PLASTICS LTD. THE KPO BUSINESS REMAINED WITH THE COMPANY. A PERUSAL OF THE ANNUAL REPORT REVEALED THAT TO GIVE EFFECT T O THE MERGER AND DEMERGER, THE FINANCIAL STATEMENTS WERE REVISED AND RESTATED AFTER SIX MONTHS FORM THE END OF THE FINANCIAL YEAR 31.3. 2008. THE ASSESSEE FILED FORM NO.21 UNDER THE COMPANIES ACT WITH THE REGISTRAR OF COMPANIES ON 26TH AUGUST, 2008. THUS THE EFFECTIVE DATE OF THE SCHEME OF MERGER AND DEMERGER WAS 26TH AUGUST, 2008. THE ANNUAL REPORT SUPPORTED THE ARGUMENT OF THE ASSESSEE THAT THERE WERE MERGER AND DEMERGER IN THE FINANCIAL YEAR AND IT WAS AN EXCEPTIONAL YEAR OF PERFORMANCE AS FINANCIAL STATEMENTS WERE REVISED BY THIS COMPANY MUCH AFTER THE CLOSURE OF THE PREVIOUS YEAR. THE PANEL AGREES WITH THE CONTENTION OF THE ASSESSEE THAT IT IS AN EXCEPTIONAL YEAR HAVING SIGNIFICANT IMPACT ON THE PROFITABILITY ARISING OUT OF MERGER A ND DEMERGER.' 11. ON CAREFUL CONSIDERATION OF THE MATTER, WE ALSO AGREE WITH THE AFORESAID VIEW OF THE DRP THAT EXTRA - ORDINARY EVENT LIKE MERGER AND DE-MERGER WILL HAVE AN EFFECT ON THE PROFITABILITY OF THE COMPANY IN THE F INANCIAL YEAR IN WHICH SUCH EVENT TAKES PLACE. IT IS THE CON TENTION OF THE ASSESSEE THAT IN CASE OF THE AFORESAID COMPA NY, THERE IS AMALGAMATION IN DECEMBER, 2006, WHICH HAS IMPACTED THE FINANCIAL RESULT. THIS FACT HAS TO BE VERIFIED BY THE TPO. IF IT IS FOUND UPON SUCH VERIFICATION T HAT THE AMALGAMATION IN FACT AHS TAKEN PLACE, THEN THE AFOR ESAID COMPARABLE HAS TO BE EXCLUDED. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE RATIO LAI D DOWN BY THE HYDERABAD BENCH OF THE ITAT IS SQUARELY APPLICABLE TO THE PRESENT CASE ALSO. IT IS CLEAR THAT DURING THE PRE VIOUS YEAR THERE WERE EXTRA ORDINARY EVENTS THAT TOOK PLACE IN THIS COMPANY WHICH WARRANTS EXCLUSION OF THIS COMPANY AS A COMPARABLE. WE THEREFORE HOLD THAT THIS COMPANY CANNOT BE CONSIDER ED AS A COMPARABLE. IT(TP)A NO.1559/BANG/2012 PAGE 8 OF 23 13. WITH RESPECT TO ACROPETAL TECHNOLOGIES LTD., TH E LD. COUNSEL FOR THE ASSESSEE AGAIN RELIED ON THE DECISION OF THE COORDI NATE BENCH OF THIS TRIBUNAL IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA ) WHEREIN IT HAS BEEN HELD THIS COMPANY IS NOT FUNCTIONALLY COMP ARABLE AT PARA 12 & 13 OF ITS ORDER:- (2) ACROPETAL TECHNOLOGIES LTD. (SEG.) 12. THIS COMPANY IS LISTED AT SL.NO.2 OF THE COMPAR ABLES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCE RNED, THE OBJECTION OF THE ASSESSEE IS THAT THIS COMPANY IS N OT FUNCTIONALLY COMPARABLE. THE ASSESSEE IS A BPO COMPANY THAT PRO VIDES MARKET ANALYTICS AND DATA MANAGEMENT SERVICES. TO PROVIDE MARKET ANALYTICS SOLUTIONS, THE ASSESSEE GIVES STRA TEGIES THAT IMPACT ON CLIENT REVENUE INCLUDING DATA BASED MARKE TING STRATEGIES FOR CUSTOMER ACQUISITION, DEVISING CUSTO MER RETENTION STRATEGIES AND EXCLUDING LOSS MITIGATION STRATEGIES THROUGH CUTTING EDGE FORECASTING TOOLS. THE DATA MANAGEMENT SERVIC ES PROVIDED BY THE ASSESSEE INCLUDE ROUTINE BUSINESS DATA REPOR TING AND MANAGEMENT, WEBSITE MANAGEMENT, MARKETING DATA ANAL YSIS AND TOP LINE REPORTING. AS FAR AS ACROPETAL TECHNOLOGI ES LTD. IS CONCERNED, THIS COMPANY DOES THE BUSINESS OF EXPORT OF SOFTWARE SERVICES. IT IS ALSO SEEN FROM THE SEGMENTAL REVENU E OF THIS COMPANY (NOTE 15 TO THE NOTES ON ACCOUNTS TO ANNUAL REPORT FOR 07-08) THAT IT DERIVES INCOME FROM ENGINEERING DESI GN SERVICES AND SOFTWARE DEVELOPMENT SERVICES. IT IS ALSO PERT INENT TO POINT OUT THAT BEFORE THE TPO, THE ASSESSEE RAISED AN OBJ ECTION THAT THIS COMPANY PERFORMS DIFFERENT FUNCTIONS AND MAINLY ENG AGED IN THE AREA OF SOFTWARE DEVELOPMENT SERVICES AND ENGINEERI NG DESIGN SERVICES. THE TPO IN HIS ORDER HAS OBSERVED THAT T HE SERVICES RENDERED BY THIS COMPANY FALL IN THE DEFINITION OF ITES. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED COUNSEL FOR THE ASSESSEE. ON A PERUSAL OF THE NOTE NO.15 OF NOTES TO ACCOUNTS WHICH GIVES SEGMENTAL REVENUE OF THIS COMPANY, IT IS CLEAR THAT THE MAJOR SOURCE OF INCOM E FOR THIS COMPANY IS FROM PROVIDING ENGINEERING DESIGN SERVIC E AND IT(TP)A NO.1559/BANG/2012 PAGE 9 OF 23 INFORMATION TECHNOLOGY SERVICES. THE FUNCTIONS PER FORMED BY THE ENGINEERING DESIGN SERVICES SEGMENT OF THE COMP ANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES/BPO FUNCTIO NS PERFORMED BY THE ASSESSEE. THE PERFORMANCE OF ENGI NEERING DESIGN SERVICES IS REGARDED AS PROVIDING HIGH END S ERVICES AMONG THE BPO WHICH REQUIRES HIGH SKILL WHEREAS THE SERVICES PERFORMED BY THE ASSESSEE ARE ROUTINE LOW END ITES FUNCTIONS. WE THEREFORE HOLD THAT THIS COMPANY COULD NOT HAVE BEEN SELECTED AS A COMPARABLE, ESPECIALLY WHEN IT PERFORMS ENGINE ERING DESIGN SERVICES WHICH ONLY A KNOWLEDGE PROCESS OUTSOURCING [KPO] WOULD DO AND NOT A BUSINESS PROCESS OUTSOURCING [BP O]. 14. REGARDING CORAL HUBS LTD. (EARLIER VISHAL INFO RMATION TECHNOLOGIES LTD.), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED T HAT IT FAILS EMPLOYEE COST FILTER AND FUNCTIONALLY NOT COMPARABLE RELYING ON T HE COORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) , WHERE IN WAS HELD AT PARAS 14 TO 17 OF ITS ORDER AS UNDER:- (3) CORAL HUBS LTD. 14. THIS COMPANY IS LISTED AT SL.NO.6 OF THE LIST O F COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMP ANY IS CONCERNED, IT IS SEEN THAT THIS COMPANY WAS EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD. THE COMPARABI LITY OF THIS COMPANY IN THE CASE OF AN ITES COMPANY BY NAME 24 X 7 CUSTOMER.COM PVT. LTD. WAS CONSIDERED BY THE TRIBUN AL IN ITA NO.227/BANG/2010 AND BY ORDER DATED 09.11.2012 THE TRIBUNAL HELD THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARAB LE WITH ITES FOR THE FOLLOWING REASON:- 17.3 VISHAL INFORMATION TECHNOLOGIES LTD. (VIT) - IN THE CASE OF THIS COMPARABLE, WE FIND THAT THE MUMBA I TRIBUNAL IN THE CASE OF MEARSK GLOBAL SERVICES (I) PVT LTD IN ITA NO.3774/MUM/2011 BY ORDER DT.9.11.2011 HAS HELD THAT SINCE VISHAL INFORMATION TECHNOLOGIES LTD IS OUTSOURCING MOST OF ITS WORK IT HAS TO BE EXCLUDED FROM THE LIST WHEREAS THE ASSESSEE IN THE CITED CASE WAS CARRYING OUT THE WORK BY ITSELF. IN THE INSTANT CAS E OF THE IT(TP)A NO.1559/BANG/2012 PAGE 10 OF 23 ASSESSEE ALSO THE ASSESSEE WAS CARRYING OUT ITS WOR K BY ITSELF WHEREAS IN THE CASE OF VITL, IT IS OUTSOURCI NG MOST OF ITS WORK. WE ARE THEREFORE OF THE CONSIDERED OPI NION THAT THE DECISION OF THE ITAT, MUMBAI IN THE CITED CASE ON THE ISSUE OF EXCLUDING VITL AS A COMPARABLE SQUA RELY APPLIES. THIS DECISION WAS FOLLOWED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF N ETLINX INDIA(P) LTD IN ITA NO.454/BANG/2011 DT.19.10.2012 WHEREIN IT WAS HELD THAT VISHAL INFORMATION TECHNOL OGIES LTD CANNOT BE CONSIDERED AS A COMPARABLE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE MUMBAI TRIBUNAL IN THE CASE OF MEARSK GLOBAL SERVIC ES (I) PVT LTD, DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE VISHAL INFORMATION TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES. 15. FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT CORAL HUBS LTD. CANNOT BE CONSIDERED A S A COMPARABLE. IT MAY ALSO BE RELEVANT TO POINT OUT T HAT THE TPO IN HIS ORDER HAS OBSERVED THAT THIS COMPANY IS RETAINE D AS A COMPARABLE ON THE BASIS OF DETAILED DISCUSSION IN T HE TP ORDER FOR THE A.Y. 2007-08. IN FACT IN A.Y. 2007-08, THERE W AS NO DETERMINATION OF ALP AND THEREFORE THERE WAS NO OCC ASION FOR ANY ORDER BEING PASSED BY THE TPO. IT IS ALSO SEEN THAT THIS COMPANY ENTERED INTO AN AREA OF BUSINESS KNOWN AS N EW VERTICAL DIGITAL LIBRARY & PRINT ON DEMAND IN F.Y. 2007-08. IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. (SUP RA) , THE ITAT HYDERABAD BENCH IN THE CASE OF ITES COMPANY CO NSIDERED THE COMPARABLE OF THIS COMPANY AS AN ITES COMPANY A ND HELD AS FOLLOWS:- IV. CORAL HUB LIMITED (EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD.): 16. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEING TAKEN AS COMPARABLE MAINLY ON THE GROUND THAT THE ACTIVITIES OF THE COMPANY IS NOT ONLY FUNCTIONALLY DIFFERENT, BUT THE BUSINESS MODEL OF THE COMPANY IS ALSO DIFFE RENT AS IT SUB-CONTRACTS MAJORITY OF ITS ITES WORKS TO T HIRD PARTY VENDORS AND HAS ALSO MADE SIGNIFICANT PAYMENT S TO THOSE VENDORS. THE PAYMENTS MADE TO VENDORS TOWARDS THE DATA ENTRY CHARGES ALSO SUPPORTS THE FACT THAT THE COMPANY OUTSOURCES ITS WORKS. IN THE CIRCUMSTANCES, IT CANNOT BE TAKEN AS A COMPARABLE TO THE ITES FUNCTIO NS PERFORMED BY THE ASSESSEE. SINCE THIS COMPANY IS AC TING IT(TP)A NO.1559/BANG/2012 PAGE 11 OF 23 AS AGENT ONLY BY OUTSOURCING ITS WORKS TO THE THIRD PARTY VENDORS. IN THIS CONTEXT, THE ASSESSEE RELIED UPON THE ORDER OF THE DRP IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WHEREIN THE DRP, AFTER TAK ING INTO CONSIDERATION, THE AFORESAID ASPECT, HAS ACCEP TED THE CLAIM OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT THE INCOME-TAX APPELLATE TRIBUNAL MU MBAI BENCH IN THE CASE OF ASSTT. CIT V. MAERSK GLOBAL SERVICE CENTRE (INDIA) (P.) LTD. [2011] 133 ITD 543/16 TAXMANN.COM 47 (MUM.) , A COPY OF WHICH IS SUBMITTED BEFORE US, HAS ALSO DIRECTED FOR THE EXCLUSION OF T HE AFORESAID COMPANY SINCE IT HAS OUTSOURCED A CONSIDERABLE PORTION OF ITS BUSINESS. 17. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE, WE FIND THAT THE DRP, IN THE PROCEEDINGS FOR THE ASSES SMENT YEAR 2008-09 IN ASSESSEE'S OWN CASE, AFTER TAKING N OTE OF THE COMPOSITION OF THE VENDOR PAYMENTS OF CORAL HUB FOR THE LAST THREE YEARS, AND THE FACT THAT IT HAS ALSO COMMENCED A NEW LINE OF BUSINESS OF PRINTING ON DEMAND(POD), WHEREIN IT PRINTS UPON CLIENTS REQUEST , CONCLUDED AS FOLLOWS- '18.4. IN VIEW OF THIS MAJOR DIFFERENCE IN FUNCTIONALITY AND THE BUSINESS MODEL, THIS PANEL IS OF THE VIEW THAT 'CORAL HUB' IS NOT A SUITABLE COMPARA BLE TO THE TAXPAYER AND HENCE NEEDS TO BE DROPPED FORM THE FINAL LIST OF COMPARABLES.' IN CASE OF MAERSK GLOBAL SERVICE CENTRE INDIA (P.) LTD. ( 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 LIMIT ED AND VISHAL INFORMATION TECHNOLOGIES LIMITED ARE CONCERNED, IT IS NOTICED FROM THEIR ANNUAL ACCOUNTS THAT THESE COMPANIES OUTSOURCED A CONSIDERABLE PORTION OF THEIR BUSINESS. AS THE ASSESSEE CARRIED OUT ENTIRE OPERATIONS BY ITSELF, IN OUR CONSIDERED OPIN ION, 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 MAER SK IT(TP)A NO.1559/BANG/2012 PAGE 12 OF 23 GLOBAL SERVICE CENTRE, (SUPRA), WE ACCEPT THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. 16. IT IS ALSO FURTHER NOTICED THAT THE EMPLOYEE C OST/OPERATING SALES OF THIS COMPANY IS A MERE 3%, WHEREAS THE THR ESHOLD LIMIT FOR ACCEPTANCE AS A COMPARABLE ON THE BASIS OF EMPL OYEE COST TO SALES SHOULD BE AT LEAST 25%. THIS TRIBUNAL IN TH E CASE OF FIRST ADVANTAGE OFFSHORE SERVICES LTD. V. CIT, IT(TP)A NO.1086/BANG/2011, ORDER DATED 30.4.2013 , HAS TAKEN THE FOLLOWING VIEW:- 36. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THEIR RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 . THIS TRIBUNAL HAS HELD THAT EMPLOYEE COST FILTER IS TO BE THE SAME EVEN FOR ITES SEGMENT ALSO. THE LEARNED D RS ARGUMENT THAT THE EMPLOYEE COST FILTER IS APPLICABL E ONLY TO SOFTWARE DEVELOPMENT SEGMENT AND NOT TO ITES SEGMENT IS NOT ACCEPTABLE. THOUGH IT IS WITHOUT AN Y DISPUTE THAT THE SOFTWARE DEVELOPMENT WOULD REQUIRE SKILLED EMPLOYEES AND, THEREFORE, THE EMPLOYEE COST WOULD DEFINITELY BE MORE THAN 25% OF THE TOTAL EXP ENSES, IT CANNOT BE SAID THAT THE SAID FILTER IS NOT APPLI CABLE TO ITES SEGMENT, WHERE COMPARABLY LESS SKILLED EMPLOYE ES ARE EMPLOYED. IN THE ITES SEGMENT, THE ENTIRE WORK IS TO BE DONE BY THE EMPLOYEES AND, THEREFORE, EVEN THOUG H THEY MAY BE LESS SKILLED COMPARED TO SOFTWARE DEVELOPMENT SEGMENT, THE NUMBER OF EMPLOYEES WOULD DEFINITELY BE MORE AND THUS THE EMPLOYEE COST WOULD BE HIGH AND THUS APPLICATION OF EMPLOYEE COST FILTER T O THE ITES SECTOR IS ALSO JUSTIFIED. IN VIEW OF THE SAME , WE DIRECT THE TPO TO APPLY THE EMPLOYEE COST FILTER TO EXCLUDE COMPANIES WITH EMPLOYEE COST OF LESS THAN 2 5% FROM THE LIST OF COMPARABLES FOR THE COMPUTATION OF ALP. 17. APPLYING THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT CORAL HUBS LTD. CANNOT BE CONSIDERED AS A COMPARABL E. 15. AS REGARDS CROSS DOMAIN SOLUTIONS LTD., THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS FUNCTIONALLY NOT COMP ARABLE RELYING ON THE DECISION OF THE COORDINATE BENCH DECISION OF THIS T RIBUNAL IN THE CASE OF IT(TP)A NO.1559/BANG/2012 PAGE 13 OF 23 SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA ) , WHERE IN WAS HELD AT PARAS 18 TO 19 OF ITS ORDER AS UNDER:- (4) CROSSDOMAIN SOLUTIONS LTD. 18. THIS COMPANY WAS CONSIDERED AS A COMPARABLE AND LISTED AT SL.NO.8 OF THE COMPARABLES CHOSEN BY THE TPO. I T IS THE STAND OF THE ASSESSEE THAT THIS COMPANY IS NOT FUNCTIONAL LY COMPARABLE. AS OBSERVED IN THE CASE OF CORAL HUBS LTD., THE TPO REJECTED THE PLEA OF THE ASSESSEE ON THE BASIS OF A NON-EXISTENT TP ORDER PASSED FOR THE A.Y. 2007-08. IT IS SEEN THAT THE B USINESS PROFILE OF THIS COMPANY IS RE-ENGINEERED PAYROLL SERVICE. THIS COMPANY IS ALSO ENGAGED IN THE DEVELOPMENT OF INFORMATION S YSTEMS. THESE ACTIVITIES ARE TOTALLY DIFFERENT FROM THE ACT IVITIES OF THE ASSESSEE WHICH PERFORM VERY LIMITED/LOW END FUNCTIO NS BACK OFFICE SERVICES. THE REVIEW AND BUSINESS FUNCTIONS OF CROSS DOMAIN IS AS FOLLOWS:- WITH A DECADE OF EXPERIENCE IN PAYROLL OUTSOURCING , CROSSDOMAIN HAS CREATED A RE-ENGINEERED PAYROLL SERVICE EFFIPAY THAT PROCESSES AND DELIVERS ACCURATE PAYROLL TO CLIENTS WITH HEADCOUNT UP TO 1000 EMPLOY EES IN JUST 4 HOURS*. WITH EFFIPAY LITE AND EFFIPAY LITE PLUS , OUR BOUQUET OF SERVICES COVER END TO END PAYROLL, R ETRIALS, REIMBURSEMENT, TAX PROOF VERIFICATIONS UPTO ISSUE O F FORM 16 FOR EMPLOYEES OF OUR CLIENTS ACROSS DIFFERENT IN DUSTRY VERTICALS. OUR PROCESSES ARE HIGHLY SCALABLE AND PROVIDE END TO END PAYROLL SOLUTIONS TO CLIENTS WITH HEADCOUNT RANGING FROM 5 TO 65,000. CROSSDOMAINS IT KNOWLEDGE AND DOMAIN COMPETENCE HAS PROVIDED THE EDGE TO DEVELOP INFORMATION SYSTEMS TO IMPLEMENT PROCESS INNOVATION AND CONTINUOUSLY INCREASE EFFICIENCY AND TURN-AROUND-TIME FOR BUSINE SS CRITICAL PROCESSES. SOURCE: HTTP://WWW.CROSS-DOMAIN.COM AS CAN BE SEEN FROM THE ABOVE, THE BUSINESS OF CROS S DOMAIN RANGES FROM HIGH END KPO SERVICES, DEVELOPMENT OF P RODUCT SUITES AND ROUTINE LOW END ITES SERVICE. HOWEVER, THERE IS NO BIFURCATION AVAILABLE FOR SUCH VERTICALS OF SERVICE S. THEREFORE THE IT(TP)A NO.1559/BANG/2012 PAGE 14 OF 23 ASSESSEE CONTENDS THAT CROSS DOMAIN CANNOT BE COMPA RED TO A ROUTINE ITES SERVICE PROVIDER. 19. WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY R EASONS GIVEN TO THE CONTRARY EITHER BY THE TPO OR THE DRP FOR REGARDING THIS COMPANY AS A COMPARABLE, THIS COMPANY SHOULD B E EXCLUDED FROM THE LIST OF COMPARABLES, ACCEPTING THE PLEA OF THE ASSESSEE. WE HOLD ACCORDINGLY. 16. AS FAR AS ECLERX SERVICES LTD. IS CONCERNED, TH E LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT HAD SUPER NORMAL PROFIT AND IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE COMPANY RELYING ON THE COORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) , WHERE IN WAS HELD AT PARAS 20 & 21 OF ITS ORDER A S UNDER:- (5) ECLERX SERVICES LTD. 20. THIS COMPANY IS LISTED AT SL.NO.11 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. IT IS THE STAND OF THE ASSESSEE THAT THIS COMPANY OFFERS SOLUTIONS THAT IN CLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONC ILIATION AND THEREFORE HAS TO BE CLASSIFIED AS HIGH END KPO. IN SUPPORT OF THE STAND OF THE ASSESSEE, EXTRACTS FROM THE ANNUAL REP ORT OF THIS COMPANY HAVE BEEN POINTED OUT. IT HAS FURTHER BEEN SUBMITTED THAT EXTRA ORDINARY EVENTS AND PECULIAR CIRCUMSTANC ES PREVAIL IN THE CASE OF THE ASSESSEE IN AS MUCH AS THIS COMPANY ACQUIRED A UK BASED COMPANY WHICH HAS SIGNIFICANTLY CONTRIBUTE D TO THE INCREASE IN THE CUSTOMER AND REVENUE BASE OF THE CO MPANY. THIS TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. (SUPRA) HAD AN OCCASION TO DEAL WITH COMPARABILITY OF THIS COMPANY IN THE CASE OF AN ITES COMPANY SUCH AS THE ASSESSEE AND THE TRIBUNAL HELD AS FOLLOWS:- 14. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEING TAKEN AS COMPARABLE MAINLY ON THE GROUND THAT IT WAS HAVING A SUPERNORMAL PROFIT OF 89%, AND AS SUCH IT CANNOT BE TAKEN AS A COMPARABLE IN VIEW OF THE DECI SION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE M/S. IT(TP)A NO.1559/BANG/2012 PAGE 15 OF 23 TEVA INDIA LTD. ( SUPRA ). THAT APART, RELYING UPON THE ANNUAL REPORT OF THE COMPANY, THE LEARNED AUTHORISE D REPRESENTATIVE FOR THE ASSESSEE HAS CONTENDED THAT THAT THE CONCERNED COMPANY IS ENGAGED IN PROVIDING KNOWLEDGE PROCESS OUTSOURCING(KPO) SERVICES. 15. ON CONSIDERING THE OBJECTIONS OF THE ASSESSEE IN RELATION TO THIS COMPANY, WE ACCEPT THE CONTENTI ON OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE BOTH FOR THE REASONS THAT IT WAS HAVING SUPERNORMAL PROFIT AND IT IS ENGAGED IN PROVIDING K PO SERVICES, WHICH IS DISTINCT FROM THE NATURE OF SERV ICES PROVIDED BY THE ASSESSEE. 21. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DE CISION OF THE HYDERABAD BENCH REFERRED TO ABOVE, THIS COMPANY CAN NOT BE REGARDED AS A COMPARABLE FOR THE REASON THAT IT WAS FUNCTIONALLY DIFFERENT. 17. WITH REGARD TO GENESYS INTERNATIONAL CORPORATIO N LTD., THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS NOT C OMPARABLE WITH THE ASSESSEE COMPANY RELYING ON THE DECISION OF THE COO RDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) , WHERE IN WAS HELD AT PARAS 22 TO 23 OF ITS ORDER AS UNDER:- (6) GENESYS INTERNATIONAL CORPORATION LTD. 22. THIS COMPANY IS LISTED AT SL. NO.12 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE AND THAT IT HAS A DIFFERENT EMPLOYEE SKILL SET AND THAT THIS COMPANY PERFORMS R &D SERVICES AND ALSO OWNS INTANGIBLES. THIS COMPANY IS A GEOSP ATIAL SERVICES CONTENT PROVIDER SPECIALISING IN LAND BASED TECHNOL OGIES. FROM THE NOTES TO ACCOUNTS OF THIS COMPANY, IT IS SEEN T HAT THIS COMPANY IS ENGAGED IN PROVIDING GEOGRAPHICAL INFORMATION SE RVICES COMPRISING OF PHOTOGRAMMETRY, REMOTE SENSING CARTOG RAPHY, DATA CONVERSION RELATED COMPUTED BASED SERVICES AND OTHE R RELATED IT(TP)A NO.1559/BANG/2012 PAGE 16 OF 23 SERVICES. FURTHER THE BUSINESS OF THIS COMPANY REQ UIRES SKILLED MANPOWER AND SCIENTISTS, CIVIL ENGINEERS, ETC. THE ASSESSEE IS A ROUTINE ITES PROVIDER WHO DOES NOT REQUIRE SUCH HIG HLY SKILLED EMPLOYEES. BESIDES THE ABOVE, THIS COMPANY ALSO CA RRIES OUT R&D SERVICES AND OWN INTANGIBLES. THE AFORESAID FA CTS, IN OUR VIEW, WILL TAKE THIS COMPANY OUT OF THE LIST OF COM PARABLES. WE MAY ALSO POINT OUT THAT THE OBJECTION OF THE ASSESS EE IN THIS REGARD HAS BEEN DISREGARDED BY THE TPO BY MERE OBSERVATION THAT IT CANNOT BE REJECTED ON THE BASIS THAT IT IS INTO DIF FERENT FUNCTIONAL LINE WITHIN ITES. IN THIS REGARD, WE MAY REFER TO THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES LTD. (SUPRA) , WHEREIN IT WAS OBSERVED AS UNDER:- 39. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THEIR RIVAL CONTENTIONS, WE FIND THAT TH E ASSESSEE HAD RAISED ELABORATE OBJECTIONS TO EACH OF THE COMPARABLES IN GROUP 3 BEFORE THE TPO. THE TPO HAS ALSO REPRODUCED THE SAID OBJECTION IN HIS ORDER PAR A 6.5.1. OF PAGE 178 OF HIS ORDER. HE HAS REJECTED TH E CONTENTION OF THE ASSESSEE BY HOLDING THAT EVERY FU NCTION WITHIN BPO SECTOR CAN BE FROM LOW END TO HIGH END A ND THE ACTIVITIES OF THE ASSESSEE SUCH AS ACCOUNTING, WEB MANAGEMENT, NETWORK MANAGEMENT ARE BPO SERVICES USING TECHNOLOGY BUT THESE SERVICES ARE NOT CATEGOR IZED AS KPO. HE HELD THAT A CALL CENTRE MAY OFFER SUPPO RT SERVICES LIKE TELEMARKETING TO HIGH END SERVICES LI KE TECHNICAL SUPPORT SERVICES, WHERE NOT ONLY THE LEVE L OF KNOWLEDGE, SKILL REQUIRED WOULD BE HIGH, BUT THE TE CHNICAL KNOWLEDGE AS WELL WOULD BE HIGH. ACCORDING TO HIM, BACK OFFICE TRANSACTION PROCESS SERVICES MAY BE AS REMARKABLE AND AS COMPLICATED AS INSURANCE/MARKET TRANSACTION PROCESSING SERVICES. HE, THEREFORE, RE JECTED THE CONTENTION OF THE ASSESSEE AND TREATED THE BPO AS EQUIVALENT TO KPO SERVICES. 40. WE HAVE TO NOW CONSIDER WHETHER A BPO AND KPO ARE FUNCTIONALLY SIMILAR AND ARE COMPARABLE TO EACH OTHER. BPO IS A SUB-SET OF OUTSCORING AND INVOLVES THE CONTRACTING OF THE OPERATIONS AND RESPONSIBILITIES OF SPECIFIC BUSINESS FUNCTIONS OR PROCESS TO A THIRD P ARTY SERVICES PROVIDER. OFTEN BUSINESS PROCESSES OUTSOU RCING ARE INFORMATION TECHNOLOGY BASED AND REFERRED TO AS ITES-BPO. KPO IS ONE OF THE SUB-SEGMENT OF THE BPO INDUSTRY. IT INVOLVES OUTSOURCING OF CORE INFORMATI ON IT(TP)A NO.1559/BANG/2012 PAGE 17 OF 23 RELATED BUSINESS ACTIVITIES WHICH ARE COMPETITIVELY IMPORTANT OR FORM AN INTEGRAL PART OF A COMPANYS V ALUE CHAIN. IT THUS REQUIRES ADVANCED ANALYTICAL AND TE CHNICAL SKILLS AS WELL AS A HIGH DEGREE OF SPECIALIST EXPER TISE. THE KPO SERVICES INCLUDE ALL KINDS OF RESEARCH AND INFORMATION GATHERING. THUS IT CAN BE SEEN THAT EV EN THOUGH BOTH BPO AND KPO ARE OFFERING INFORMATION TECHNOLOGY BASED SERVICES, THE SKILL AND EXPERTISE AND MAY BE EVEN THE TOOLS REQUIRED ARE DIFFERENT WHICH MAY RESULT IN DIFFERENT ECONOMIC RESULTS OF BOTH THE SE GMENTS. THUS, IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT THEY CANNOT BE COMPARED WITH EACH OTHER AND HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 23. IT IS THUS CLEAR FROM THE AFORESAID DECISION OF THE TRIBUNAL THAT AMONG THE ITES COMPANIES THERE IS A HIERARCHY IN TERMS OF SKILL REQUIRED TO PROVIDE SERVICES. IT RANGES FROM PROVIDING ROUTINE SERVICES WHERE NO SKILLS AND REQUIRED AND P ROVIDING SERVICES WHERE HIGHLY PROFESSIONALIZED SKILLS ARE R EQUIRED. DEPENDING ON THE SKILLS REQUIRED TO PERFORM ITES TH E COMPARABILITY HAS TO BE DONE. IN VIEW OF THE ABOVE , WE ARE OF THE VIEW THAT THIS COMPANY CANNOT BE REGARDED AS A COMP ARABLE AND DESERVES TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. 18. AS REGARDS INFOSYS BPO LTD., THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT IT HAD A DIFFERENT SCALE OF OPERATIO NS ON ACCOUNT OF BRAND VALUE OF THE PARENT COMPANY AND RELIED ON THE DECIS ION OF THE COORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) , WHERE IN WAS HELD AT PARA 24 OF ITS ORDER AS UNDER:- (7) INFOSYS BPO LTD 24. THIS COMPANY IS LISTED AT SL.13 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPAN Y IS CONCERNED, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY HAS A BRAND VALUE AND THEREFORE T HERE WOULD BE IT(TP)A NO.1559/BANG/2012 PAGE 18 OF 23 SIGNIFICANT INFLUENCE IN THE PRICING POLICY WHICH W ILL IMPACT THE MARGINS. SCHEDULE 13 TO THE PROFIT & LOSS ACCOUNT OF THIS COMPANY FOR THE F.Y. 2007-08 SHOWS THAT THIS COMPAN Y INCURRED HUGE SELLING AND MARKETING EXPENSES. PAGE 133 OF T HE ANNUAL REPORT OF THIS COMPANY FOR THE F.Y. 2007-08 SHOWS T HAT THIS COMPANY REALIZING ITS BRAND VALUE HAS CHOSEN TO VAL UE THE SAME ON THE BASIS OF ITS EARNINGS AND THAT OF INFOSYS. THE BRAND VALUE OF THE ASSESSEE AND INFOSYS HAS BEEN VALUED AT RS.3 1,863 CRORES. INFOSYS BPO, BEING A SUBSIDIARY OF INFOSYS, HAS AN ELEMENT OF BRAND VALUE ASSOCIATED WITH IT. THIS IS ALSO CLEAR FROM THE PRESENCE OF BRAND RELATED EXPENSES INCURRED BY THIS COMPANY. PRESENCE OF A BRAND COMMANDS PREMIUM PRICE AND THE CUSTOMERS WOULD BE WILLING TO PAY, FOR THE SERVICES/PRODUCTS OF THE COMPANY. INFOSYS BPO IS AN ESTABLISHED PLAYER WHO IS NOT ONLY A MARKET LEADER BUT ALSO A COMPANY EMPLOYING SHEER BR EADTH IN TERMS OF ECONOMIES OF SCALE AND DIVERSITY AND GEOGR APHICAL DISPERSION OF CUSTOMERS. THE PRESENCE OF THE AFOR ESAID FACTORS WILL TAKE THIS COMPANY OUT OF THE LIST OF COMAPARAB LES. WE THEREFORE ACCEPT THE CONTENTION OF THE ASSESSEE THA T THIS COMPANY CANNOT BE REGARDED AS A COMPARABLE. 19. REGARDING MOLD-TEK TECHNOLOGIES LTD., THE LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS NOT FUNCTIONALLY COMP ARABLE TO THAT OF THE ASSESSEE COMPANY AND RELIED ON THE COORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) , WHERE IN WAS HELD AT PARA 25 OF ITS ORDER AS UNDE R:- (8) MOLD-TEK TECHNOLOGIES LTD. 25. THIS COMPANY IS LISTED AT SL.NO.16 OF THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE SUBMISSION OF THE ASSESSE E BEFORE US IS THAT IT IS IN THE BUSINESS OF KNOWLEDGE PROCESS OUT SOURCING AND CANNOT BE CONSIDERED AS A COMPARABLE. THE FUNCTION AL PROFILE OF THIS COMPANY IS AS FOLLOWS:- IT(TP)A NO.1559/BANG/2012 PAGE 19 OF 23 AS PER THE ANNUAL REPORT FOR THE F.Y. 2007-08, THE COMPANY PRIMARILY OPERATES IN TWO BUSINESS SEGMENTS : PLASTIC DIVISION : THE PLASTIC DIVISION IS ENGAGED IN THE MANUFACTURE OF TUBE & OILS, PAINTS, PET PRODUCTS, CONSUMER PRODUCTS, ETC. THE COMPANY DEMERGED THE SAID SEGMENT EFFECTIVE 1 APRIL, 2007 AND TRANSFERRE D THE BUSINESS UNIT TO THE COMPANY PLASTICS LT. THE EXTRA CT FROM THE ANNUAL REPORT CONFIRMS THE FACT THAT THE COMPANY HAD RESTRUCTURED ITS OPERATIONS RESULTING I N DEMERGING THE PLASTIC SEGMENT BUSINESS. INFORMATION TECHNOLOGY (IT) DIVISION : THE IT DIVISION (ALSO REFERRED TO AS THE KPO DIVISION BY THE COMPAN Y) OF THE COMPANY SPECIALIZES IN PROVIDING STRUCTURAL DES IGN AND DETAILING SERVICES WHICH CAN BE CATEGORIZED AS STRUCTURAL ENGINEERING SERVICES. THE STRUCTURAL ENGINEERING SERVICES PROVIDED BY THE IT DIVISION OF THE COMPANY CANNOT BE CLASSIFIED AS FALLING WITH THE SC OPE AND AMBIT OF ITES SERVICES. ON THE CONTRARY, THE S AID SERVICES WOULD FALL UNDER THE CATEGORY OF ENGINEERI NG SERVICES. EXCERPTS FROM THE ANNUAL REPORT OF THE COMPANY PAGE 10 OF THE ANNUAL REPORT FOR THE FY 2007-08 CONTAINS THE FOLLOWING OBSERVATION REGARDING THE KP O DIVISION OF THE COMPANY: THE COMPANY HAS ACHIEVED ABOUT 56.49% GROWTH IN 2007-08 TO REGISTER A TURNOVER OF RS.17.86 CRORE. T HE COMPANY HAVING ESTABLISHED ITS CREDENTIALS IN STRUCTURAL ENGINEERING SERVICES TO US CLIENTS IS DEVISING AGGRESSIVE MARKETING STRATEGY TO ACHIEVE RAPID GROW TH. THIS COMPANY IS ALSO ENGAGED IN PROVIDING A HOST OF ENGINEERING SERVICES LIKE CIVIL AND STRUCTURAL ENGINEERING SERV ICES, MECHANICAL PRODUCT DESIGN, PLANT ENGINEERING, IT SERVICES AND GIS SERVICES. AS WE HAVE ALREADY SEEN, THIS COMPANY IS TO BE CLAS SIFIED AS KPO AND CANNOT BE COMPARED WITH THE ASSESSEE. THE DECI SION OF THE BANGALORE BENCH OF THE ITAT IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES LTD. (SUPRA) WHICH WE HAVE REFERRED TO IN THE EARLIER PART OF THIS ORDER WILL CLEARLY APPLY TO TH IS COMPANY. WE THEREFORE DIRECT THIS COMPANY TO BE EXCLUDED FROM T HE LIST OF COMPARABLES. IT(TP)A NO.1559/BANG/2012 PAGE 20 OF 23 20. WITH REGARD TO WIPRO LTD. (SEG), THE LD. COUNSE L FOR THE ASSESSEE SUBMITTED THAT IT IS DISTINGUISHABLE FOR DIFFERENT SCALE OF OPERATIONS ON ACCOUNT OF BRAND VALUE OF PARENT COMPANY AND NOT CO MPARABLE WITH THE ASSESSEE RELYING ON THE DECISION OF THE COORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) , WHERE IN WAS HELD AT PARA 26 OF ITS ORDER AS UNDE R:- (8) WIPRO LTD. 26. THIS COMPANY IS LISTED AT SL.NO.18 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE DISCUSSION MADE WHILE DEC IDING INFOSYS BPO LTD. AS A COMPARABLE WILL EQUALLY APPLY TO THIS COMPANY ALSO. THIS COMPANY OWNS SUBSTANTIAL INTELL ECTUAL PROPERTY ON SOFTWARE PRODUCTS. THIS COMPANY CANNOT THEREFORE BE REGARDED AS A COMPARABLE. FOR THE REASONS GIVEN WHILE DISREGARDING INFOSYS BPO LTD. AS A COMPARABLE, THIS COMPANY IS ALSO DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPA RABLES. 21. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SCENARIO ON EXCLUSION OF THE COMPARABLES AS POINTED OUT ABOVE W OULD RESULT IN 7.97% DETERMINED BY THE TPO AS AGAINST 8.30% DECLARED BY THE ASSESSEE AND SINCE IT IS WITHIN THE RANGE OF +/- 5%, THE ASSESSM ENT ORDER DATED 27.9.2012 PASSED BY THE AO PURSUANT TO THE DIRECTIO NS OF THE DRP IS NOT IN ACCORDANCE WITH LAW. 22. AS FAR AS ADITYA BIRLA MINACS WORLDWISE LTD., C OSMIC GLOBAL LTD., DATAMATICS FINANCIAL SERVICES LTD. (SEG), E4E HEALT HCARE SOLUTIONS LTD. IT(TP)A NO.1559/BANG/2012 PAGE 21 OF 23 (FORMERLY NITTANY OUTSOURCING SERVICES PVT. LTD.), ISERVICES LTD., JINDAL INTELLICOM PVT. LTD., R. SYSTEMS INTERNATIONAL LTD. (SEG), SPANCO LTD. (SEG), ALLSEC TECHNOLOGIES LTD. [ASSESSEES COMPARABLES], ASIT C. MEHTA FINANCIAL SERVICES LTD. (SEG.) AND CALIBER POINT BU SINESS SOLUTIONS LTD. [TPOS COMPARABLES], THE LD. COUNSEL DID NOT AGITA TE THE ISSUE. 23. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE OF COMPARABLES AND WE ARE OF THE OPINION THAT IN THE PRESENT CASE IF THER E IS EXCLUSION OF THE COMPARABLES MADE BY THE TPO FOLLOWING THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) , THE ASSESSEE WILL BE WITHIN +/- 5% RANGE AND HEN CE THE DRP/AO HAVE ERRED IN MAKING TP ADJUSTMENT OF RS.83,877,257 . GROUND NO.3.6 RAISED BY THE ASSESSEE IS THEREFORE ALLOWED. 24. THE NEXT ISSUE IS WITH REGARD TO CORPORATE TAX AND THE GROUNDS NO.5 & 6 RAISED BY THE ASSESSEE ARE AS FOLLOWS:- 5. THE HONOURABLE DRP HAS ERRED IN LAW AND ON FACT S IN UPHOLDING THE AOS ACTION OF SETTING-OFF THE LOSSES INCURRED BY THE DOMESTIC UNIT AGAINST THE INCOME EARNED BY THE UNIT ELIGIBLE FOR RELIEF UNDER SECTION 10A OF THE ACT. THE HONOU RABLE DRP HAS ERRED IN LAW BY NOT RELYING ON THE SUBMISSION MADE BY THE ASSESSEE IN THIS REGARD AND NOT FOLLOWING THE DECIS ION OF HONBLE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF ACIT, 12(3) VS YOKOGAWA INDIA LTD. (341 ITR 385) AND ITO, WARD 12(2) BANGALORE VS SCT SOFTWARE SOLUTIONS (INDIA) PRIVATE LIMITED (ITA NO.1014/BANG/2004). 6. THE HONOURABLE DRP HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE AOS REASONING IN RE-COMPUTING THE RE LIEF U/S. 10A OF THE ACT AND THEREBY COMPUTING THE RELIEF UNDER S ECTION 10A OF IT(TP)A NO.1559/BANG/2012 PAGE 22 OF 23 THE ACT AT NIL (AS AGAINST THE AMOUNT OF RS.60,892, 020 CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME). 25. SINCE THE ISSUE IS COVERED BY THE JUDGMENT OF H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT, 12(3) V. YOKOGAWA INDIA LTD., 341 ITR 385 (KARN) , WE ARE OF THE VIEW THAT THE DRP HAS ERRED IN UPHO LDING THE AOS REASONING IN RECOMPUTING THE RELIEF U/S 10A AND THE REBY COMPUTED THE RELIEF U/S. 10A AT NIL AS AGAINST THE AMOUNT OF RS.60,892, 020 CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME. THIS GROUND OF APPEAL IS ALLOWED. 26. THE 7 TH GROUND IS AN ALTERNATE GROUND AND SINCE WE HAVE DE CIDED GROUND NOS.5 & 6, THE SAME IS NOT ADJUDICATED UPON. 27. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF OCTOBER, 2015. SD/- SD/- ( JASON P. BOAZ ) (ASHA VIJAYARAGHAVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 23 RD OCTOBER, 2015. /D S/ IT(TP)A NO.1559/BANG/2012 PAGE 23 OF 23 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.