Cummins Turbo Technologies Ltd., UK, Pune V. DDIT (Int. Tax)-I, Pune

ITA 161/PUN/2013

• Counselvise Citation: 16124514 RSA 2013
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 18-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S C SARANGI
• Assessee Lawyers: R R VORA
• Keywords: Transfer pricing; Rectification of order; International transaction
• Section: 143(3); 37(1); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NOS.161 & 269/PN/2013 (A. YS. : 2007-08 & 2008-09) CUMMINS TURBO TECHNOLOGIES LTD., UK, C/O CUMMINS TECHNOLOGIES INDIA LTD., CUMMINS INDIA OFFICE CAMPUS, FLOOR 5, TOWER A, SURVEY NO.21, BALEWADI, PUNE 411 045. PAN : AABCH2501H . APPELLANT VS. DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-I, PUNE. . RESPONDENT ASSESSEE BY : MR. RAJENDRA AGIWAL & MR. R.R. VORA DEPARTMENT BY : MR. RAJESH DAMOR & MR. S. C. SARANGI DATE OF HEARING : 28-08-2014 DATE OF PRONOUNCEMENT : 29-09-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED TWO APPEALS RELATE TO THE SAME ASSESS EE FOR TWO DIFFERENT ASSESSMENT YEARS BUT SINCE SOME OF THE IS SUES INVOLVED ARE COMMON, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER A ND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. 2. FIRST, WE SHALL TAKE-UP THE APPEAL IN ITA NO.161 /PN/2013 FOR ASSESSMENT YEAR 2007-08 DIRECTED AGAINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE DATED 12.11.2012 W HICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 28.02.2011 PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 144C(4) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2007-08. ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 3. THE APPELLANT BEFORE US, IS A COMPANY INCORPORA TED IN UNITED KINGDOM AND IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND S ALE OF TURBOCHARGERS. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 IT HAS EARNED TAXABLE INCOME IN THE FORM OF ROYALTY FROM C UMMINS TURBO TECHNOLOGIES LTD., INDIA AS WELL AS FROM THE IT ENA BLED SERVICES OPERATIONS OF ITS INDIA BRANCH. THE ASSESSMENT OF THE INCOME REL ATING TO THE SAID INDIA BRANCH IS THE SUBJECT-MATTER OF DISPUTE BEFORE US. THE INDIA BRANCH OF THE ASSESSEE IS REGISTERED UNDER SOFTWARE TECHNOLOGY PA RKS OF INDIA (STPI) AS A 100% EXPORT ORIENTED UNIT. THE INDIA BRANCH PROVID ES SUPPORT SERVICES IN THE AREAS OF FINANCE, HUMAN RESOURCES, MARKETING, DATAB ASE SUPPORT, PRODUCT MANAGEMENT SUPPORT, PROCUREMENT/SUPPLY CHAIN MANAGE MENT SUPPORT, INFORMATION TECHNOLOGY SERVICES AND ENGINEERING SE RVICES FOR ITS PARENT OFFICE. 4. IN THIS BACKGROUND, FOR THE ASSESSMENT YEAR 2007 -08 APPELLANT FILED A RETURN OF INCOME DECLARING TAXABLE INCOME OF RS.5,7 3,60,741/-. SINCE ASSESSEE HAD UNDERTAKEN CERTAIN INTERNATIONAL TRANS ACTIONS WITH ITS ASSOCIATED ENTERPRISES, THE ASSESSING OFFICER MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (IN SHORT TPO) U/S 92CA(1) OF THE ACT IN ORDER TO DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTE RED BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. THE TPO PASSED AN ORDER U/ S 92CA(3) OF THE ACT ON 28.10.2010 MAKING AN ADJUSTMENT OF RS.27,67,040/- T O THE STATED VALUE OF INTERNATIONAL TRANSACTIONS OF IT ENABLED SERVICES R ENDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES SO AS TO BRING IT TO THE LEVEL OF ARM'S LENGTH PRICE. THE ASSESSING OFFICER HAS PASSED AN ORDER U/S 143(3 ) R.W.S. 144C(4) OF THE ACT ON 28.02.2011 COMPUTING THE INCOME FROM THE INT ERNATIONAL TRANSACTIONS AT THE ARM'S LENGTH PRICE DETERMINED BY THE TPO THEREB Y MAKING AN ADDITION OF RS.27,67,040/- ON THIS COUNT. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO HAS SINCE ALLOWED CERTAIN REL IEFS TO THE ASSESSEE ON THIS ISSUE. THE CIT(A) DIRECTED THE ASSESSING OFFICER T O MODIFY THE ADDITION BY (I) INCLUDING GENESYS INTERNATIONAL CORPORATION LTD. AS A COMPARABLE; (II) ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 RECTIFYING THE ERRORS IN THE CALCULATION OF OPERATI NG MARGIN OF INFORMED TECHNOLOGY INDIA LTD.; AND, (III) ALLOWING WORKING CAPITAL ADJUSTMENT. THE ASSESSING OFFICER HAS SINCE PASSED AN ORDER GIVING EFFECT TO THE ORDER OF THE CIT(A) WHEREBY THE ADDITION ON ACCOUNT OF DETERMINA TION OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED WITH THE ASSOCIATED ENTERPRISES HAS BEEN SCALED DOWN TO RS.17,14,116/- AS AGAINST A SUM OF RS.27,67,040/- DETERMINED BY THE TPO. NOT BEING SATISFIED WITH TH E ORDER OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US WITH RESPEC T TO THE ADDITION SUSTAINED BY HIM ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS CARRIED OUT WITH THE ASSOCIATED ENTERP RISES. IN THE MEMO OF APPEAL, THOUGH THE ASSESSEE HAS RAISED MULTIPLE GR OUNDS OF APPEAL RELATING TO THE AFORESAID ADDITION BUT THE PLEAS RAISED ON T HIS ASPECT BEFORE US ARE BEING DEALT WITH HEREINAFTER. 5. BEFORE WE PROCEED TO ADJUDICATE THE SPECIFIC GRI EVANCES OF THE ASSESSEE, WE CONSIDER IT APPROPRIATE TO BRIEFLY NOT E THE FOLLOWING BACKGROUND. THE APPELLANT HAD CARRIED OUT VARIED INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE, NAMELY, PURCHASE OF GOODS, S ALE OF COMPONENTS/SPARE PARTS, RECEIPT OF ROYALTY, PROVISION OF IT ENABLED SERVICES AND MARKETING SUPPORT SERVICES, LEASE RENT, RECEIPT OF DIVIDEND, REIMBURSEMENT OF EXPENSES, ETC.. THE ONLY INTERNATIONAL TRANSACTION WHICH HAS BEEN SUBJECTED BY THE TPO FOR ADJUSTMENT IS PROVISION OF IT ENABLED SERVICES (ITES) AND MARKETING SUPPORT SERVICES WHEREAS THE OTHER TRANSACTIONS HAVE BEEN A CCEPTED AT BEING AT AN ARM'S LENGTH PRICE. IN THE TRANSFER PRICING STUDY UNDERTAKEN BY THE ASSESSEE FOR ITS INTERNATIONAL TRANSACTION OF PROVISION FOR IT ENABLED SERVICES, ASSESSEE SELECTED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ARM'S LENGTH PR ICE. THE ASSESSEE USED OPERATING PROFIT/OPERATING COST AS THE PROFIT LEVEL INDICATOR (PLI). BY SELECTING COMPARABLE COMPANIES USING CERTAIN FILTERS THE ARIT HMETIC MEAN PLI OF THE COMPARABLE COMPANIES WAS WORKED OUT AT 15.54% AFTER CONSIDERING THE ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 FINANCIAL DATA OF THE COMPARABLES FOR THREE FINANCI AL YEARS. THE ASSESSEES PLI WAS COMPUTED AT 11.76% AND AFTER TAKING THE BEN EFIT OF +/-5% PROVIDED U/S 92C(2) OF THE ACT, THE INTERNATIONAL TRANSACTIO N WAS CLAIMED TO BE AT AN ARM'S LENGTH PRICE. THE TPO ACCEPTED THE SELECTION OF TNNM AS THE MOST APPROPRIATE METHOD FOR THE PURPOSES OF DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. THE TPO HAS REJECTE D CERTAIN COMPANIES SELECTED BY THE ASSESSEE AS COMPARABLES AND HAS INC LUDED CERTAIN OTHER COMPANIES IN THE FINAL SET OF COMPARABLES. FURTHER , THE TPO HAS CONSIDERED THE SINGLE YEAR FINANCIAL DATA OF THE FINANCIAL YEA R 2006-07 OF THE COMPARABLE COMPANIES AS WAS AVAILABLE AT THE TIME OF TRANSFER PRICING PROCEEDINGS. THE ARITHMETIC MEAN PLI OF THE FINAL SET OF COMPARABLE COMPANIES SELECTED BY THE TPO WORKED OUT TO 22.20%, AS AGAINST THE MARGIN OF 11.76% DECLARED BY THE ASSESSEE. WHILE DETERMINING THE ADJUSTMENT TO THE STATED VALUE OF INTERNATIONAL TRANSACTIONS, THE TPO DID NOT ALLOW T HE ADJUSTMENT SOUGHT BY THE ASSESSEE ON ACCOUNT OF WORKING CAPITAL, MARKETING A ND RISK PROFILE DIFFERENCES OF THE APPELLANT VIS--VIS THE COMPARABLE COMPANIES . ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE INCOME FROM THE INTE RNATIONAL TRANSACTIONS AT THE ARMS LENGTH PRICE DETERMINED BY THE TPO AND MA DE AN ADDITION OF RS.27,67,040/- TO THE RETURNED INCOME ON THIS COUNT . THE ASSESSEE CHALLENGED THE AFORESAID ACTION OF THE TPO/ASSESSIN G OFFICER BEFORE THE CIT(A) WHO HAS ALLOWED PARTIAL RELIEF. THE CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE FOR INCLUSION OF GENESYS INTERNATIONAL COR PORATION LTD. IN THE SET OF COMPARABLE COMPANIES AND ALSO DIRECTED THE ASSESSIN G OFFICER TO RECTIFY THE ERROR IN THE CALCULATION OF OPERATING MARGIN OF ONE OF THE COMPARABLES SELECTED, NAMELY, INFORMED TECHNOLOGIES INDIA LTD. AND FURTHER ALLOWED AN ADJUSTMENT FOR WORKING CAPITAL DIFFERENCES. THE OT HER CONTENTIONS OF THE ASSESSEE WERE NEGATED BY THE CIT(A) AGAINST WHICH A SSESSEE IS IN APPEAL BEFORE US. ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 6. BEFORE US, THE FIRST PLEA OF THE ASSESSEE IS THA T THE CONCERN, INFORMED TECHNOLOGIES INDIA LTD. IS REQUIRED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES BECAUSE THE SAID CONCERN IS ABNORMAL PR OFIT MAKING COMPANY. IN THIS CONTEXT, IT IS POINTED OUT THAT THE OPERATI NG MARGIN OF THE SAID CONCERN IS 34.71%. THE CIT(A) HAS REJECTED THE PLEA OF THE AS SESSEE ON THE GROUND THAT THE POINT CANVASSED BY THE ASSESSEE WOULD INVOLVE C ONSIDERATION OF THE FINANCIAL DATA OF THE SAID CONCERN OF MULTIPLE YEAR S AND NOT THE DATA OF THE SINGLE FINANCIAL YEAR UNDER CONSIDERATION. 7. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT THE ABNORMAL PROFIT MAKING COMPANIES OUGHT TO BE EX CLUDED FROM THE FINAL SET OF COMPARABLES SELECTED BY THE TPO AS THE SAME WOUL D LEAD TO SKEWED RESULTS. IT HAS ALSO BEEN POINTED OUT THAT THE ASS ESSEE IS A CAPTIVE SERVICE PROVIDER AND HAS TRANSACTED ONLY WITH ITS ASSOCIATE D ENTERPRISES AND IS BEING COMPENSATED BY ITS ASSOCIATED ENTERPRISES ON COST P LUS AGREED MARKUP IN RESPECT OF PROVISION OF IT ENABLED SERVICES. IT DO ES NOT BEAR SIGNIFICANT RISKS VIS--VIS COMPARABLE CONCERNS WHICH ARE FULL RISK B EARING ENTITIES. THEREFORE, THE CONCERNS WHICH HAVE ABNORMAL PROFITS OR THERE I S A WIDE FLUCTUATION IN THEIR PROFITS CONSIDERED OVER A PERIOD OF TIME, SUCH COMP ANIES ARE LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL STANDS ON THIS ASPECT. IN THE CONTEXT OF THE CONTROVERSY RELATING TO THE EXCLUSIO N OF ABNORMAL PROFIT MAKING CONCERNS, A REFERENCE HAS BEEN MADE TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES ( INDIA) PRIVATE LTD. VS. ACIT VIDE ITA NO.7466/MUM/2012 DATED 07.03.2014. THE RE LEVANT OBSERVATIONS OF THE BENCH ARE AS UNDER :- IN GENERALITY, WE ARE OF THE VIEW THAT THE ANSWER TO THIS QUESTION WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE INASMUCH AS POTENTIAL COMPARABLE EARNING ABNORMALLY HIGH PROFIT MARGIN SH OULD TRIGGER FURTHER INVESTIGATION IN ORDER TO ESTABLISH WHETHER IT CAN BE TAKEN AS COMPARABLE OR ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 NOT. SUCH INVESTIGATION SHOULD BE TO ASCERTAIN AS T O WHETHER EARNING OF HIGH PROFIT REFLECTS A NORMAL BUSINESS CONDITION OR WHET HER IT IS THE RESULT OF SOME ABNORMAL CONDITIONS PREVAILING IN THE RELEVANT YEAR . THE PROFIT MARGIN EARNED BY SUCH ENTITY IN THE IMMEDIATELY PRECEDING YEAR/S MAY ALSO BE TAKEN INTO CONSIDERATION TO FIND OUT WHETHER THE HIGH PROFIT M ARGIN REPRESENTS THE NORMAL BUSINESS TREND. THE FAR ANALYSIS IN SUCH CASE MAY B E REVIEWED TO ENSURE THAT THE POTENTIAL COMPARABLE EARNING HIGH PROFIT S ATISFIES THE COMPARABILITY CONDITIONS. IF IT IS FOUND ON SUCH INVESTIGATION TH AT THE HIGH MARGIN PROFIT MAKING COMPANY DOES NOT SATISFY THE COMPARABILITY A NALYSIS AND OR THE HIGH PROFIT MARGIN EARNED BY IT DOES NOT REFLECT THE NOR MAL BUSINESS CONDITION, WE ARE OF THE VIEW THAT THE HIGH PROFIT MARGIN MAKING ENTITY SHOULD NOT BE INCLUDED IN THE LIST OF COMPARABLE FOR THE PURPOSE OF DETERM INING THE ARMS LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. OTHERWISE, THE ENT ITY SATISFYING THE COMPARABILITY ANALYSIS WITH ITS HIGH PROFIT MARGIN REFLECTING NORMAL BUSINESS CONDITION SHOULD NOT BE REJECTED SOLELY ON THE BASI S OF SUCH ABNORMAL HIGH PROFIT MARGIN. IN TERMS OF THE AFORESAID DISCUSSION OF THE SPECIA L BENCH, IT IS QUITE CLEAR THAT THE CONCERNS EARNING ABNORMAL HIGH PROFI T MARGINS CANNOT BE EXCLUDED FROM THE LIST OF COMPARABLES UNLESS APPROP RIATE INVESTIGATIONS ARE MADE. IT WOULD BE NECESSARY TO ASCERTAIN AS TO WHE THER THE HIGH PROFIT MARGINS REFLECT A NORMAL BUSINESS PHENOMENA OR WHET HER IT IS THE RESULT OF CERTAIN ABNORMAL CONDITIONS PREVAILING IN A PARTICU LAR YEAR. IN ORDER TO DETERMINE SO, PROFIT MARGINS EARNED BY SUCH CONCERN IN THE PROXIMATE PRECEDING AND SUCCEEDING YEARS WOULD BE REQUIRED TO BE CONSIDERED IN ORDER TO ESTABLISH WHETHER THE HIGH PROFIT MARGINS REFLEC T A NORMAL BUSINESS TREND OR OTHERWISE. IN THIS BACKGROUND OF THE MATTER, THE A PPELLANT HAS FURNISHED BEFORE US THE OPERATING MARGIN TRENDS OF THE SAID C ONCERN OVER THE FIVE FINANCIAL YEARS I.E. FOR THE THREE PRECEDING YEARS AND ONE SUCCEEDING FINANCIAL YEAR. NOTABLY, FOR THE FINANCIAL YEAR UNDER CONSID ERATION, THE MARGIN OF THE SAID CONCERN IS 34.71% WHEREAS FOR THE PRECEDING TH REE FINANCIAL YEARS OF 2003-04, 2004-05 AND 2005-06 IT IS -6.47%, -69.07% AND -44.21% RESPECTIVELY AND FOR THE SUBSEQUENT FINANCIAL YEAR OF 2007-08, THE MARGIN IS 3.67%. THE AFORESAID CLEARLY SUGGESTS A WIDE FLU CTUATION IN THE MARGINS EARNED BY THE SAID CONCERN OVER A PERIOD OF TIME. IN-FACT, A FURTHER ANALYSIS OF THE FINANCIAL DATA FOR THE AFORESAID YEARS SUGGEST THAT THERE IS A WIDE FLUCTUATION IN THE REVENUE GENERATION OF THE SAID C ONCERN DURING THE FINANCIAL ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 YEAR UNDER CONSIDERATION AS COMPARED TO THE PAST TH REE FINANCIAL YEARS. FOR THE SUBSEQUENT FINANCIAL YEAR, THE REVENUE GENERATI ON HAS TAKEN A DOWNWARD TREND WHICH AGAIN REFLECTS A WIDE FLUCTUATION. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED TO TH E ANNUAL REPORT OF THE SAID CONCERN FOR THE FINANCIAL YEAR UNDER CONSIDERATION TO POINT OUT THAT THE COMPANY HAS ACKNOWLEDGED A GROWTH OF 132.86% IN ITS REVENUE GENERATION AS COMPARED TO THE IMMEDIATELY PRECEDING FINANCIAL YEA R. IN OUR CONSIDERED OPINION, THERE IS NO MATERIAL TO SAY THAT THE HIGH PROFIT MARGIN OF 34.71% DECLARED BY THE SAID CONCERN IN THE INSTANT FINANCI AL YEAR IS A NORMAL BUSINESS TREND. OSTENSIBLY, THE FINANCIAL RESULTS OF EITHE R THE THREE PRECEDING FINANCIAL YEARS OR OF THE SUCCEEDING FINANCIAL YEAR DO NOT JU STIFY THAT THE MARGIN OF 34.71% FOR THE YEAR UNDER CONSIDERATION IS A NORMAL BUSINESS TREND. THUS, IN OUR CONSIDERED OPINION, THE INCLUSION OF THE SAID C ONCERN IN THE FINAL SET OF COMPARABLES WOULD NOT LEND CREDIBILITY TO THE COMPA RABILITY ANALYSIS AND THEREFORE IT DESERVES TO BE EXCLUDED. WE HOLD SO. 9. THE PLEA SETUP BY THE CIT(A), AND WHICH HAS BEEN REITERATED BEFORE US IS THAT THE POINT SETUP BY THE ASSESSEE WOULD INVOL VE CONSIDERATION OF MULTIPLE YEAR DATA OF THE COMPARABLE WHEREAS THE TRANSFER PR ICING ANALYSIS IS REQUIRED TO BE DONE BASED ON THE SINGULAR FINANCIAL YEAR DAT A I.E. FINANCIAL YEAR DATA OF THE COMPARABLES RELEVANT TO THE YEAR IN WHICH THE I NTERNATIONAL TRANSACTIONS HAVE BEEN ENTERED INTO. IN OUR CONSIDERED OPINION, THE AFORESAID PLEA OF THE REVENUE IS UNTENABLE HAVING REGARD TO THE ISSUE IN QUESTION. NO DOUBT, SUB- RULE (4) OF RULE 10B OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) PRESCRIBE THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNA TIONAL TRANSACTION HAS BEEN ENTERED INTO. SO HOWEVER, THE AFORESAID RULE IS NO T ABSOLUTE INASMUCH AS PROVISO THEREOF PERMITS USE OF THE DATA RELATING TO OTHER YEARS, SUBJECT TO THE CONDITION THAT IT REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON THE ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TESTED TRANSACTION. WE ARE ONLY POINTING OUT THE AFORESAID TO SAY THAT THE PRO POSITION BEING CANVASSED BY THE REVENUE THAT DATA OF THE FINANCIAL YEAR IN WHIC H THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO, ALONE AND ALONE, IS TO BE USED IS NOT AN ABSOLUTE PROPOSITION. NEEDLESS TO SAY, THE OBJECTI VE OF CARRYING OUT THE COMPARABILITY ANALYSIS IS TO DETERMINE THE ARM'S LE NGTH PRICE OF AN INTERNATIONAL TRANSACTION BY MEANS OF EXAMINING SIMILARLY PLACED UNCONTROLLED TRANSACTIONS. THEREFORE, IF ON FACTS, IT CAN BE ESTABLISHED THAT ADOPTION OF A CERTAIN COMPARABLE WOULD LEAD TO SKEWED RESULTS OR THAT THE FINANCIAL DATA OF A PARTICULAR COMPARABLE IS OTHERWISE DEVOID OF CREDIB ILITY, SUCH COMPARABLES WOULD DESERVE TO BE EXCLUDED FROM THE LIST OF COMPA RABLES EVEN IF SUCH AN EXERCISE INVOLVED EXAMINATION OF DATA OF THE COMPAR ABLES FOR MORE THAN ONE FINANCIAL YEAR. IN THE PRESENT CASE, AS OUR DISCU SSION IN THE EARLIER PARAS REVEAL, THE PROFIT MARGIN OF 34.71% FOR THE YEAR UN DER CONSIDERATION IS AN ABNORMAL BUSINESS TREND, AND, ACCORDINGLY THE SAID CONCERN IS LIABLE TO BE EXCLUDED. THEREFORE, WE DO NOT FIND ANY FORCE IN THE PLEA OF THE REVENUE TO RETAIN THE SAID CONCERN IN THE FINAL LIST OF COMPAR ABLES. 10. IN CONCLUSION, WE SET-ASIDE THE ORDER OF THE CI T(A) ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO EXCLUDE INFORMED TE CHNOLOGIES INDIA LTD. FROM THE FINAL LIST OF COMPARABLES. 11. ANOTHER PLEA RAISED BEFORE US IS AGAINST THE IN CLUSION OF MAPLE ESOLUTIONS LTD. AS A COMPARABLE CONCERN BY THE TPO, WHICH HAS SINCE BEEN AFFIRMED BY THE CIT(A). BEFORE THE LOWER AUTHORIT IES, ASSESSEE OBJECTED TO THE INCLUSION OF THE SAID CONCERN AS COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY DIFFERENT FROM THE ACTIVITIES OF THE A SSESSEE. AS PER THE APPELLANT, MAPLE ESOLUTIONS LTD. IS A BPO AND IS CARRYING OUT CALL CENTRE SERVICES WHICH IS QUITE DISTINCT FROM THE PROVISION OF IT ENABLED SERVICES (ITES) RENDERED BY ASSESSEE TO ITS ASSOCIATED ENTERPRISES. THE LOWER AUTHORITIES HAVE REJECTED ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 THE PLEA OF THE ASSESSEE ON THE GROUND THAT A CALL CENTRE BUSINESS IS ALSO UNDERSTOOD AS AN ITES WHICH ALSO COVERS ASSESSEES CATEGORY OF BUSINESS. THE CIT(A) HAS ALSO FOUND IT EXPEDIENT TO RETAIN MA PLE ESOLUTIONS LTD. AS A COMPARABLE CONCERN BASED ON THE ABOVE REASONING. 12. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED THE STAND OF THE ASSESSEE RAISED BEFORE THE LOWER AUTHO RITIES TO THE EFFECT THAT THE ACTIVITIES OF MAPLE ESOLUTIONS LTD. ARE FUNCTIONALL Y DIFFERENT THAN THOSE OF ASSESSEES INDIA BRANCH IN QUESTION. BY REFERRING TO THE ACTIVITY PROFILE OF MAPLE ESOLUTIONS LTD. IT IS SUBMITTED THAT IT IS EN GAGED IN PROVIDING CALL CENTRE SERVICES. THE LEARNED COUNSEL REFERRED TO THE FUNC TIONS BEING PERFORMED BY THE ASSESSEE AS ENUMERATED IN THE TRANSFER PRICING STUDY, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK FILED BEFORE US. ON THAT BASIS, IT IS SOUGHT TO BE POINTED OUT THAT THE ACTIVITIES BEING UNDERTA KEN BY THE ASSESSEE ARE NOT SIMILAR TO THOSE OF MAPLE ESOLUTIONS LTD. APART TH EREFROM, A NEW PLEA HAS BEEN RAISED TO JUSTIFY EXCLUSION OF MAPLE ESOLUTION S LTD., BASED ON THE DECISIONS OF (I) DELHI BENCH OF TRIBUNAL IN THE C ASE OF ITO VS. CRM SERVICES INDIA (P) LTD. VIDE ITA NO.4068(DEL)/2009 FOR ASSES SMENT YEAR 2004-05 DATED 30.06.2011; AND (II) HYDERABAD BENCH OF THE TRIBU NAL IN THE CASE OF M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. VS . DCIT VIDE ITA NO.1961/HYD/2011 FOR ASSESSMENT YEAR 2007-08 DATED 23.11.2012, COPIES OF WHICH ARE PLACED ON RECORD. BY REFERRING TO THE R ELEVANT DISCUSSION IN THE AFORESAID DECISIONS OF THE TRIBUNAL, IT IS CONTEND ED THAT THE DIRECTORS OF MAPLE ESOLUTIONS LTD. WERE FOUND TO BE INVOLVED IN CERTAI N FRAUDS AND THEREFORE THE FINANCIAL RESULTS OF THE SAID CONCERN WERE CONSIDER ED AS UNRELIABLE AND ACCORDINGLY THE SAID CONCERN WAS EXCLUDED FROM BEIN G CONSIDERED AS A COMPARABLE. 13. ON THE OTHER HAND, THE LEARNED CIT-DR APPEARING FOR THE REVENUE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES IN SUPPORT OF THE CASE OF THE ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 REVENUE AND SINCE SUCH REASONING HAS ALREADY BEEN N OTED BY US IN THE EARLIER PARAS, THE SAME IS NOT REPEATED FOR THE SAK E OF BREVITY. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IT IS QUITE WELL- SETTLED THAT THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION IS TO BE JUDGED WITH REFER ENCE TO VARIOUS FACTORS, VIZ., THE SPECIFIC FEATURES OF THE SERVICES PROVIDED IN T HE COMPARED TRANSACTIONS, THE FUNCTIONS PERFORMED BY THE RESPECTIVE PARTIES BY TA KING INTO ACCOUNT ASSETS EMPLOYED AND RISKS ASSUMED, ETC. AN UNCONTROLLED T RANSACTION IS TO BE UNDERSTOOD AS COMPARABLE TO THE INTERNATIONAL TRANS ACTION IF THERE ARE NO DIFFERENCES BETWEEN THE TWO AND IN CASE THERE ARE DIFFERENCES, THEN SUCH DIFFERENCES ARE NOT LIKELY TO MATERIALLY EFFECT THE PRICE OR THE COST CHARGED OR THE PROFIT ARISING FROM SUCH TRANSACTION IN THE OPE N MARKET. IT WOULD BE OF RELEVANCE TO EMPHASISE THAT THE ACTIVITIES/BUSINESS BEING CARRIED OUT BY THE COMPARABLES OUGHT TO BE FUNCTIONALLY COMPARABLE TO THAT OF THE TESTED PARTY. IN THE PRESENT CASE, THE PLEA OF THE ASSESSEE IS THAT MAPLE ESOLUTIONS LTD. IS CARRYING OUT A PURE CALL CENTRE ACTIVITY WHEREAS TH E SUPPORT SERVICES BEING PROVIDED BY THE ASSESSEE TO THE ASSOCIATED ENTERPRI SES ARE IN THE AREAS OF (I) FINANCE; (II) MARKETING; (III) DATABASE SUPPORT; (I V) PRODUCT MANAGEMENT SUPPORT; (V) PROCUREMENT/SUPPLY CHAIN MANAGEMENT SU PPORT; AND, (VI) INFORMATION TECHNOLOGY AND ENGINEERING SERVICES. IT HAS BEEN SPECIFICALLY CONVASSED BEFORE US THAT THE ASSESSEE IS NOT INVOLV ED IN ANY VOICE BASED CALL CENTRE FUNCTIONS, WHEREAS MAPLE ESOLUTIONS LTD. IS PROVIDING CALL CENTRE SERVICES. THUS, IT IS SOUGHT TO BE DEMONSTRATED T HAT THE ACTIVITIES OF THE ASSESSEE CANNOT BE COMPARED WITH A CONCERN WHICH IS MERELY RUNNING A CALL CENTRE/BPO. 15. IN OUR CONSIDERED OPINION, THE DIFFERENCE IN FU NCTIONS SOUGHT TO BE CANVASSED BY THE ASSESSEE IS EMERGING FROM RECORD. MERELY BECAUSE THE TWO KIND OF ACTIVITIES ARE REFERRED TO AS ITES IN A NOT IFICATION BY THE CBDT DOES NOT ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 IMPLY THAT THE SAME HAVE TO BE UNDERSTOOD AS FUNCTI ONALLY IDENTICAL/SIMILAR. IN- FACT, THE DISSIMILARITY IN THE FUNCTIONS PERFORMED BY ASSESSEE AND MAPLE ESOLUTIONS LTD. IS QUITE EVIDENT AND THE SAME HAS A LSO NOT BEEN DISPUTED BY THE LOWER AUTHORITIES. ON THIS ASPECT, WE ARE OF T HE OPINION THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF C OMPARABLES. APART THEREFROM, THE DECISION OF OUR CO-ORDINATE BENCHES OF DELHI AN D HYDERABAD IN CRM SERVICES INDIA (P) LTD. (SUPRA) AND M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (SUPRA) RESPECTIVELY ALSO SUPPORT ASSES SEES PLEA THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES BECAUSE OF UNRELIABILITY OF THE FINANCIAL DATA OF THE SAID CON CERN. THEREFORE, ON BOTH THE ABOVE COUNTS, WE SET-ASIDE THE ORDER OF THE CIT(A ) ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO EXCLUDE MAPLE ESOLUTIONS L TD. FROM THE FINAL LIST OF COMPARABLES. THUS, ON THIS POINT ALSO ASSESSEE SUC CEEDS. 16. AT THE TIME OF HEARING, IT WAS STATED BY THE LE ARNED REPRESENTATIVE FOR THE APPELLANT THAT IF ASSESSEE WERE TO SUCCEED ON ITS PLEA OF THE EXCLUSION OF INFORMED TECHNOLOGIES INDIA LTD. AND MAPLE ESOLUTIO NS LTD. FROM THE FINAL SET OF COMPARABLES, THEN THE VARIATION BETWEEN THE ARM 'S LENGTH PRICE DETERMINED POST-ORDER OF THE CIT(A) AND THE STATED VALUE OF TH E INTERNATIONAL TRANSACTION WOULD FALL WITHIN THE +/-5% AND THEREFORE IN TERMS OF SECTION 92C(2) OF THE ACT NO ADJUSTMENT WOULD BE REQUIRED TO BE MADE. SINCE WE HAVE UPHELD THE PLEA OF THE ASSESSEE FOR EXCLUSION OF INFORMED TECHNOLOG IES INDIA LTD. AND MAPLE ESOLUTIONS LTD. FROM THE FINAL SET OF COMPARABLES, THE OTHER GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ORDER TO ASSAIL THE ADDIT ION OF RS.17,14,116/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ARE RENDERED ACADEMIC AND ARE NOT BEING ADJUDICATED FOR THE PRESENT. 17. THE ONLY OTHER ISSUE REMAINING IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 IS A DISALLOWANCE OF RS.90, 000/- REPRESENTING FEE PAID BY THE ASSESSEE TO REGISTRAR OF COMPANIES (ROC ), PUNE FOR LATE FILING OF ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 CERTAIN FORMS UNDER THE COMPANIES ACT, 1956. THE A SSESSING OFFICER AND THEREAFTER THE CIT(A) HAVE DISALLOWED THE SAID EXPE NDITURE ON THE GROUND THAT THE PAYMENT WAS IN THE NATURE OF PENALTY AND THUS T HE SAME WAS NOT AN ALLOWABLE EXPENDITURE IN TERMS OF THE EXPLANATION B ELOW SECTION 37(1) OF THE ACT. 18. BEFORE US, THE PLEA OF THE APPELLANT IS THAT TH E FEE OF RS.90,000/- PAID TO ROC, PUNE IS COMPENSATORY IN NATURE AS THE SAME WAS PAID FOR LATE FILING OF CERTAIN FORMS TO THE ROC. IT HAS BEEN EXPLAINED TH AT THE AFORESAID EXPENDITURE IS NOT INCURRED FOR INFRACTION OF ANY L AW SO AS TO ATTRACT THE EXPLANATION TO SECTION 37(1) OF THE ACT. RELIANCE HAS BEEN PLACED ON THE FOLLOWING DECISIONS :- (I) KAIRA CAN COMPANY LIMITED VS. DCIT, (2010) 2 IT R 20; (II) CIT VS. AHMEDABAD COTTON MFG. CO. (1994) 205 ITR 163 (SC); AND, (III) CIT VS. LOKE NATH & (CONSTRUCTION) CO. (1984 ) 147 ITR 624 (DEL). 19. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UP ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REV ENUE. 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. EXPLANATION BELOW SECTION 37(1) OF THE ACT PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF AN EXPENDITURE INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. THE AFORESA ID PROVISION HAS BEEN INVOKED BY THE ASSESSING OFFICER TO DISALLOW A SUM OF RS.90,000/- PAID BY THE ASSESSEE TO ROC, PUNE AS ADDITIONAL FEES FOR FILING OF CERTAIN FORMS. THE STAND OF THE ASSESSEE IS THAT THE IMPUGNED SUM HAS BEEN PAID AS FEE FOR BREACH OF A REGULATORY PROCEDURE OF FILING FORMS WI TH ROC UNDER THE COMPANIES ACT, 1956 AND IS NOT FOR ANY INFRACTION O F LAW. THE ADDITIONAL FEE/COST TO REGULARIZE THE DEFAULT IN COMPLIANCE WI TH THE FILING REQUIREMENTS ARE SPECIFIED BY THE DEPARTMENT OF COMPANY AFFAIRS, GO VERNMENT OF INDIA AND IT ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 DOES NOT ENVISAGE THAT THE PAYMENTS ARE PENAL IN NA TURE. IN OUR CONSIDERED OPINION, WHETHER OR NOT A PARTICULAR PAYMENT IS IN NATURE OF PENALTY IS REQUIRED TO BE EXAMINED HAVING REGARD TO THE PARTICULAR STAT UTORY SCHEME IN TERMS OF WHICH IT HAS BEEN INCURRED. IN THE PRESENT CASE, A PART FROM MAKING A BALD ASSERTION THE INCOME-TAX AUTHORITIES HAVE NOT ESTAB LISHED AS TO HOW THE IMPUGNED PAYMENT IS IN THE SHAPE OF PENALTY OR AN A MOUNT AKIN TO PENALTY FOR ANY BREACH OR INFRACTION OF LAW OR ANY PUBLIC POLIC Y. IN THE ABSENCE OF SUCH A FINDING BASED ON RELEVANT MATERIAL WE ARE UNABLE TO ACCEPT THE STAND OF THE REVENUE THAT EXPLANATION TO SECTION 37(1) OF THE AC T IS ATTRACTED QUA THE IMPUGNED PAYMENT. THEREFORE, WE SET-ASIDE THE ORDE R OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITI ON. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2007-08 IS PARTLY ALLOWED. 22. NOW, WE TAKE-UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 WHICH IS DIRECTED AGAINST THE ORDER OF THE DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-I, PUNE. (IN SHORT THE AS SESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(13) OF ACT DATED 29.11.2012, WHI CH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL, P UNE (IN SHORT THE DRP) DATED 05.09.2012. 23. IN THIS APPEAL, THE SUBSTANTIVE DISPUTE IS WITH REGARD TO AN ADDITION OF RS.74,07,086/- MADE BY THE ASSESSING OFFICER TO THE STATED VALUE OF INTERNATIONAL TRANSACTION OF IT ENABLED SERVICES RE NDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE IN ORDER TO DETERMINE ITS ARM'S LENGTH PRICE. THE AFORESAID DISPUTE STANDS ON SIMILAR FOOTING TO THAT DEALT WITH BY US IN THE EARLIER PARAS IN THE ASSESSEES OWN CASE FOR ASSESS MENT YEAR 2007-08. ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 24. IN THIS ASSESSMENT YEAR ALSO, THE NATURE OF SER VICES RENDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE BY WAY OF IT ENABLED SERVICES REMAIN SIMILAR TO THOSE IN ASSESSMENT YEAR 2007-08. IN TH IS YEAR ALSO, THE TPO ACCEPTED ALL OTHER INTERNATIONAL TRANSACTIONS CARRI ED OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES AT BEING AT AN ARM'S LEN GTH PRICE. IN THIS YEAR ALSO, THE TNNM WAS SELECTED BY THE ASSESSEE AS THE MOST A PPROPRIATE METHOD TO DETERMINE THE ARM'S LENGTH PRICE AND THE SAME HAS ALSO BEEN ACCEPTED BY THE TPO. IN THIS YEAR ALSO ASSESSEE USED THE OPERATING PROFIT/OPERATING COST AS THE PLI WHICH HAS BEEN ACCEPTED BY THE TPO. THE AR ITHMETIC MEAN PLI, OF THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE C AME TO 10.28% AFTER CONSIDERING WEIGHTED AVERAGE DATA OF THREE YEARS AN D ASSESSEES PLI FOR THE YEAR WAS 10.03% AND THEREFORE ASSESSEE CLAIMED THAT INTERNATIONAL TRANSACTION WAS CONCLUDED AT AN ARM'S LENGTH PRICE AFTER CONSIDERING THE BENEFIT OF +/-5% PROVIDED U/S 92C(2) OF THE ACT. 25. IN THIS YEAR TOO, THE TPO REJECTED CERTAIN COMP ARABLES SELECTED BY THE ASSESSEE AND INCLUDED CERTAIN ADDITIONAL COMPANIES AS COMPARABLES IN THE FINAL SET OF COMPARABLES. THE TPO HAS CONSIDERED S INGLE FINANCIAL DATA PERTAINING TO THE FINANCIAL YEAR UNDER CONSIDERATIO N FOR THE PURPOSES OF COMPARABILITY ANALYSIS, AS WAS THE CASE IN ASSESSME NT YEAR 2007-08. THOUGH THE TPO AGREED THAT A WORKING CAPITAL ADJUSTMENT IS ALLOWABLE BUT HE DID NOT ALLOW THE ADJUSTMENT ON THE GROUND THAT ASSESSEE DI D NOT FURNISH COMPLETE DETAILS FOR THE SAME. WITH RESPECT TO ADJUSTMENTS FOR DIFFERENCE IN RISK PROFILE MARKETING, ETC. VIS--VIS THE COMPARABLE COMPANIES THE TPO DID NOT GIVE ANY ADJUSTMENT, AS WAS HIS STAND FOR ASSESSMENT YEAR 2 007-08. ULTIMATELY, THE TPO DETERMINED THE ARITHMETIC MEAN PLI OF THE REVIS ED SET OF COMPARABLE COMPANIES AT 27.61% AND MADE AN ADJUSTMENT OF RS.1, 26,41,010/- IN ORDER TO BRING THE STATED VALUE OF INTERNATIONAL TRANSACTION TO AN ARM'S LENGTH PRICE. THE ORDER OF THE TPO DATED 28.10.2010 WAS RECTIFIED ON AN APPLICATION MOVED BY THE ASSESSEE WHEREBY THE ARITHMETIC MEAN PLI OF THE COMPARABLES SELECTED ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 BY THE TPO WAS REWORKED AT 24.97%. ACCORDINGLY, IN THE RECTIFIED ORDER DATED 15.12.2011, THE TPO REDUCED THE ADJUSTMENT TO RS.1, 13,95,549/- IN ORDER TO BRING THE INTERNATIONAL TRANSACTION OF THE ASSESSE E TO THE LEVEL OF THE ARMS LENGTH PRICE. THE ASSESSING OFFICER PASSED A DRAFT ASSESSMENT ORDER ACCORDINGLY. THE ASSESSEE FILED OBJECTION AGAINST THE DRAFT ASSESSMENT ORDER BEFORE THE DRP. THE DRP VIDE ITS ORDER DATED 05.09 .2012 GAVE DIRECTIONS TO THE ASSESSING OFFICER ALLOWING CERTAIN RELIEFS TO T HE ASSESSEE. IN PARTICULAR, THE DRP REQUIRED THE ASSESSING OFFICER TO (I) RECTI FY THE ERROR IN CALCULATION OF OPERATING MARGINS OF CALLIBER POINT BUSINESS SOLUTI ONS LTD., R. SYSTEMS INTERNATIONAL LTD. (SEGMENTAL), GENESYS INTERNATION AL LTD.; AND, (II) ALLOWED THE WORKING CAPITAL ADJUSTMENT. AS A CONSEQUENCE THE A SSESSING OFFICER PASSED A FINAL ASSESSMENT ORDER U/S 143(3) R.W.S. 144C(13) OF THE ACT DATED 29.11.2012 DETERMINING AN ADJUSTMENT OF RS.74,07,08 6/- AS AGAINST RS.1,13,95,549/- PROPOSED BY THE TPO IN ORDER TO DE TERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES RENDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES. 26. AGAINST THE AFORESAID ADDITION, LEARNED REPRESE NTATIVE FOR THE ASSESSEE HAS RAISED THE FOLLOWING SUBMISSIONS BEFORE US. FI RSTLY, IT IS CANVASSED THAT THE INCOME-TAX AUTHORITIES HAVE ERRED IN INCLUDING CORAL HUBS LTD. (EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD.) AS A COMPARABLE CONCERN. THE PLEA OF THE ASSESSEE IS THAT CORAL HUBS LTD. IS ENGAGED IN THE BUSINESS OF CONVERSION OF BOOKS INTO POD TITLES (E-PUBLISHING B USINESS) WHICH IS QUITE DISTINCT FROM THE BUSINESS UNDERTAKEN BY THE ASSESS EE. SECOND REASON ADVANCED BY THE ASSESSEE FOR EXCLUSION OF THE SAID COMPARABLE IS A SIGNIFICANT OUTSOURCING OF BUSINESS OPERATIONS BY THE SAID CON CERN. IN THIS CONTEXT, A REFERENCE HAS BEEN MADE TO THE ANNUAL FINANCIAL REP ORT OF CORAL HUBS LTD., WHOSE RELEVANT EXTRACT IS PLACED AT PAGE 395-396 O F THE PAPER BOOK TO SHOW THAT THE SUBSTANTIAL PORTION OF EXPENSES ARE BY WAY OF OUTSOURCED EXPENSES WHEREAS THE PERSONNEL EXPENSES ARE MERELY 4.4% OF T HE TOTAL EXPENSES. THE ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 OUTSOURCED EXPENSES INCLUDE, VIZ., DATA ENTRY CHARG ES, VENDOR PAYMENTS AND EXPENSES ON CONVERSION OF BOOKS INTO POD TITLES ETC . IN THIS CONTEXT, IT HAS ALSO BEEN POINTED OUT THAT MUMBAI BENCH OF THE TRIB UNAL IN THE CASE OF ACIT VS. MAERSK GLOBAL SERVICE CENTER (INDIA) (P) LTD., (2012) 66 DTR 90 HAS NOTICED THAT ON ACCOUNT OF THE SAID CONCERN HAVING OUTSOURCED CONSIDERABLE PORTION OF HIS BUSINESS, IT WOULD NOT BE APPROPRIAT E TO INCLUDE IT AS A COMPARABLE. ACCORDINGLY, IT IS SOUGHT TO BE CONTEN DED THAT THE SAID CONCERN BE EXCLUDED FROM THE FINAL SET COMPARABLES. 27. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THA T THE DRP HAS CONSIDERED ASSESSEES OBJECTION OF CORAL HUBS LTD. BEING FUNCTIONALLY NON- COMPARABLE AND REJECTED THE SAME ON THE GROUND THAT THE E-PUBLISHING BUSINESS FALLS UNDER THE CATEGORY OF ITES AND HENCE THE SAID CONCERN IS COMPARABLE. FURTHER, IT IS CONTENDED THAT THE OUTS OURCING OF BUSINESS BY CORAL HUBS LTD. WOULD SHOW HIGHER VENDOR PAYMENTS AND LOW EMPLOYEE COSTS AND IF THE TWO ARE COMBINED, IT WOULD BECOME COMPARABLE TO THE CASE OF A NORMAL CONCERN LIKE THE ASSESSEE. THEREFORE ON THIS POINT ALSO THE EXCLUSION OF CORAL HUBS LTD. IS SOUGHT TO BE ASSAILED. 28. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE OBJECTIVE OF THE TRANSFER PRICING ANALYSIS IS TO DETERMINE THE A RM'S LENGTH PRICE OF THE TESTED TRANSACTION OR IN OTHER WORDS TO DETERMINE A PRICE AT WHICH SIMILARLY PLACED UNCONTROLLED TRANSACTIONS WOULD HAVE BEEN EN TERED INTO BY TWO UNCONTROLLED ENTERPRISES. IN THE TNMM, THE SAID OB JECTIVE IS SOUGHT TO BE ACHIEVED BY MAKING A COMPARISON OF THE MARGINS OF T HE CONCERNS WHICH ARE OTHERWISE FOUND TO BE COMPARABLE ON A FAR ANALYSIS. THEREFORE, IF ONE IS TO EXAMINE THE MARGINS OF AN ENTITY, THE NATURE AS WEL L AS THE BUSINESS MODEL IN WHICH SUCH ENTITIES OPERATE WOULD DEFINITELY OF SIG NIFICANCE. IN THE PRESENT CASE, THE OBJECTION TO THE INCLUSION OF CORAL HUBS LTD. AS A COMPARABLE IS BASED ON THE FACT THAT THE SAID CONCERN OPERATES ON A DIFFERENT BUSINESS ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 MODEL. IT HAS BEEN EXPLAINED THAT A SUBSTANTIAL PO RTION OF WORK IS EXECUTED BY CORAL HUBS LTD. BY WAY OF OUTSOURCING OF ACTIVITIES . PER CONTRA, THE OPERATIONS OF THE ASSESSEE ARE THROUGH ITS OWN EMPLOYEE PERSON NEL. IN OUR VIEW, THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL SERVICE CENTER (INDIA) (P) LTD. (SUPRA) RIGHTLY APPRECIATED SUCH A DIFFERENCE IN THE BUSINESS MODEL AND HELD THAT THE CONCERN, CORAL HUBS LTD. WA S NOT COMPARABLE VIS-- VIS THE TESTED PARTY BEFORE THE MUMBAI BENCH OF THE TRIBUNAL. SIMILAR IS THE SITUATION BEFORE US ALSO AND THEREFORE WE ARE INCLI NED TO UPHOLD ASSESSEES PLEA OF EXCLUDING CORAL HUBS LTD. FROM THE FINAL SE T OF COMPARABLES ON ACCOUNT OF THE AFORESAID DISTINCTION IN THE BUSINESS MODEL. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 29. THE NEXT PLEA OF THE ASSESSEE IS TO EXCLUDE GEN ESYS INTERNATIONAL CORPORATION LTD. FROM THE LIST OF FINAL COMPARABLES ON THE GROUND THAT FOR THE FINANCIAL YEAR ENDED 31.03.2008 CORRESPONDING TO TH E YEAR UNDER CONSIDERATION BEFORE US, THE SAID CONCERN HAS MADE ABNORMALLY HIGH PROFIT OF 46.82%. THE PLEA RAISED BY THE ASSESSEE IS ON SIMI LAR FOOTING AS WAS MADE IN THE APPEAL FOR ASSESSMENT YEAR 2007-08 IN THE CONTE XT OF THE EXCLUSION OF INFORMED TECHNOLOGIES INDIA LTD.. SIMILAR PROPOSIT ION HAS BEEN EXAMINED BY US IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEA R 2007-08 IN THE EARLIER PARAGRAPHS FOLLOWING THE DECISION OF THE SPECIAL B ENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PRIVATE LTD. (SUPRA) AND IT HAS BEEN HELD TO BE APPLICABLE HAVING REGARD TO THE FACTS AN D CIRCUMSTANCES OF THE CASE. IN THE CONTEXT OF EXCLUSION OF GENESYS INTERNATIONA L CORPORATION LTD. ALSO, ASSESSEE HAS FURNISHED THE OPERATING MARGINS OF THE SAID CONCERN FOR THREE FINANCIAL YEARS INCLUDING THE PRECEDING TWO YEARS. IN THE PAST TWO YEARS MARGINS OF THE SAID CONCERN ARE 2.64% AND 12.52% WH EREAS FOR THE YEAR UNDER CONSIDERATION IT IS 46.82%. IN OUR CONSIDERE D OPINION THE FACTS IN THE CASE OF GENESYS INTERNATIONAL CORPORATION LTD. ARE PARI-MATERIA TO THOSE CONSIDERED BY US IN THE CASE OF INFORMED TECHNOLOGI ES INDIA LTD. FOR ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 ASSESSMENT YEAR 2007-08 WHILE EVALUATING ITS EXCLUS ION IN THE CONTEXT OF THE REASONING LAID DOWN BY THE SPECIAL BENCH OF THE TRI BUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PRIVATE LTD. (SUPRA). THEREFORE, ON THE BASIS OF SIMILAR REASONING, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE GENESYS INTERNATIONAL CORPORATION LTD. FROM THE FINAL SET O F COMPARABLES FOR THE PURPOSES OF DETERMINATION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES TO THE ASSOCIATED ENTERPRISES. 30. AT THE TIME OF HEARING, IT WAS STATED BY T HE LEARNED REPRESENTATIVE FOR THE APPELLANT THAT IF ASSESSEE WERE TO SUCCEED ON ITS PLEA OF THE EXCLUSION OF . CORAL HUBS LTD. AND GENSEYS INTERNATIONAL CORPORAT ION LTD. FROM THE FINAL SET OF COMPARABLES, THEN THE VARIATION BETWEEN THE ARM 'S LENGTH PRICE DETERMINED POST-ORDER OF THE CIT(A) AND THE STATED VALUE OF TH E INTERNATIONAL TRANSACTION WOULD FALL WITHIN THE +/-5% AND THEREFORE IN TERMS OF SECTION 92C(2) OF THE ACT NO ADJUSTMENT WOULD BE REQUIRED TO BE MADE. SINCE WE HAVE UPHELD THE PLEA OF THE ASSESSEE FOR EXCLUSION OF INFORMED TECHNOLOG IES INDIA LTD. AND MAPLE ESOLUTIONS LTD. FROM THE FINAL SET OF COMPARABLES, THE OTHER GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ORDER TO ASSAIL THE ADDIT ION OF RS.74,07,086/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ARE RENDERED ACADEMIC AND ARE NOT BEING ADJUDICATED FOR THE PRESENT. 31. IN THIS APPEAL, THE LAST GROUND OF APPEAL IS AG AINST A DISALLOWANCE OF RS.10,000/- REPRESENTING FEE PAID BY THE ASSESSEE T O REGISTRAR OF COMPANIES (ROC), PUNE FOR LATE FILING OF CERTAIN FORMS UNDER THE COMPANIES ACT, 1956. THE ASSESSING OFFICER AND THEREAFTER THE CIT(A) HAV E DISALLOWED THE SAID EXPENDITURE ON THE GROUND THAT THE PAYMENT WAS IN T HE NATURE OF PENALTY AND THUS THE SAME WAS NOT AN ALLOWABLE EXPENDITURE IN T ERMS OF THE EXPLANATION BELOW SECTION 37(1) OF THE ACT. THE SAID DISPUTE S TANDS ON SIMILAR FOOTING TO THAT DEALT WITH BY US IN THE EARLIER PARAS IN THE A SSESSEES OWN CASE FOR ITA NO.161 & 269/PN/2013 A.YS. : 2007-08 & 2008-09 ASSESSMENT YEAR 2007-08 AND OUR AFORESAID DECISION WOULD APPLY MUTATIS- MUTANDIS IN ASSESSMENT YEAR 2008-09 ALSO. WE HOLD A CCORDINGLY. 32. RESULTANTLY, BOTH THE CAPTIONED APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPTEMBER, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 29 TH SEPTEMBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE; 4) THE CIT(A)IT/TP, PUNE; 5) THE CIT-IT/TP, PUNE; 6) THE DR A BENCH, I.T.A.T., PUNE; 7) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE