Appeal details
Counselvise Citation
[2013] 140 COUNSELVISE.COM (IT) 69878 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
43 year(s) 9 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-10-2013
Appeal Filed By
Assessee
Assessment Year
misc
Appeal Filed On
01-01-1970
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1612/HYD/2010 ASSESSMENT YEAR : 2005-06 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD., (PREVIOUSLY KNOWN AS M/S INTELLIGROUP ASIA PVT. LTD.), HYDERABAD. PAN: AAACI7064D VS. ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 2(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PANKAJ JAIN REVENUE BY : SHRI HARILAL NAYAK DATE OF HEARING : 15-10-2013 DATE OF PRONOUNCEMENT : 23-10-2013 O R D E R PER B. RAMAKOTAIAH, A.M.: THIS APPEAL PREFERRED BY ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-III, HYDERABAD, DATED 13/10/2010 FOR THE ASSESSMENT YEAR 2005-06. THE ISSUE IN THIS APPEAL IS WITH REFE RENCE TO THE ADDITION MADE UNDER THE PROVISIONS OF TRANSFER PRIC ING. 2. BRIEFLY STATED, ASSESSEE IS A COMPANY ENGAGED I N BUSINESS OF SOFTWARE DEVELOPMENT AND RELATED SERVICES. FOR THE AY 2005-06, IT HAD FILED RETURN OF INCOME ON 01-11-2005 SHOWING IN COME OF RS. 96,89,907/-. LATER, ASSESSEE HAD FILED A REVISED RE TURN ON 10-02-2006 ADMITTING INCOME AT RS. 1,00,68,825/-, WHICH WAS PR OCESSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SEL ECTED FOR SCRUTINY 2 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. ASSESSMENT. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE AO NOTICED THAT DURING THE PREVIOUS YEAR, ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISE. SINCE VALUE OF SUCH TRANSACTIONS EXCEEDS RS. 5,00,00,000/-, THE AO HAD MADE A REFERENCE TO THE ADDITIONAL COMMISSIONER OF INCOME- TAX (TRANSFER PRICING/TPO) OF THE ACT, FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF SUCH TRANSACTIONS. IN RESPONSE TO THIS, AFTER CA RRYING OUT VERIFICATION AND NECESSARY ENQUIRIES, THE TPO VIDE HIS ORDER DATED 30- 05-2008 PASSED U/S 92CA(3) OF THE ACT, WHILE ACCEPT ING TRANSACTIONAL NET MARGIN METHOD (TNMM), AS THE MOST APPROPRIATE M ETHOD, DETERMINED THE ARMS LENGTH PRICE OF SUCH TRANSACTI ONS AT RS. 93,63,69,863/- AS AGAINST RS. 86,51,06,000/- SHOWN BY ASSESSEE, THEREBY SUGGESTING FOR ADJUSTMENT OF RS. 7,12,63,86 3/- TO THE ALP OF SUCH TRANSACTIONS U/S 92CA OF THE ACT. LATER, IN CO NFORMITY WITH SUCH ORDER OF THE TPO, WHILE ADOPTING THE ALP OF SUCH IN TERNATIONAL TRANSACTIONS AT RS. 93,63,69,863/-, THE AO MADE ADD ITION OF RS. 7,12,63,863/- TO THE INCOME OF ASSESSEE, TOWARDS AD JUSTMENT U/S 92CA OF THE ACT. 3. FURTHER, DURING THE ASSESSMENT, WHILE VERIFYING CLAIM OF DEDUCTION U/S 10A OF THE ACT, THE AO HAD ASKED ASSE SSEE TO PRODUCE THE FOREIGN INWARD REMITTANCE CERTIFICATES (FIRCS) IN SUPPORT OF THE FIGURE OF EXPORT TURNOVER CLAIMED BY THEM. IN RESPO NSE TO THIS, AS NOTED BY HIM, ASSESSEE COULD FURNISH FIRCS TO THE E XTENT OF RS. 104,78,38,893/-. CONSIDERING THIS AMOUNT AS THE EXP ORT TURNOVER, THE AO COMPUTED THE ALLOWABLE DEDUCTION U/S 10A OF THE ACT AT RS. 16,49,46,331/-. 4. WITH THE ABOVE ADDITION AND AFTER ALLOWING DEDU CTION FOR THE SAID AMOUNT U/S 10A OF THE ACT, THE AO COMPLETED TH E ASSESSMENT ON A TOTAL INCOME OF RS. 8,76,72,530/- VIDE ORDER DATE D 29-12-2008. 3 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. 5. BEFORE THE LEARNED CIT(A), ASSESSEE HAD RAISED M ANY GROUNDS WITH REFERENCE TO VARIOUS ISSUES BUT THE LEARNED CI T(A) MORE OR LESS CONFIRMED THE ORDER OF THE AO. 6. BEFORE US, ASSESSEE RAISED DETAILED GROUNDS IN G ROUND NO. 1 RUNNING FROM 1.0 TO 1.7 HAVING 17 SUB-GROUNDS ON TH E ISSUE OF ADJUSTMENTS MADE TO PROFITS UNDER THE TP PROVISIONS . VIDE LETTER DATED 12-09-2013, ASSESSEE FILED MODIFICATION OF GROUNDS OF APPEAL AS GROUND NO. 1.4.5, WHICH IS AS UNDER: THE LD.TPO/CIT(A) ERRED IN NOT UNDERTAKING AN OBJEC TIVE COMPARATIVE ANALYSIS AND INTER-ALIA SELECTING THE F OLLOWING COMPANIES AS COMPARABLE TO THE APPELLANT FOR DETERM INATION OF ALP UNDER TNMM: I. EXENSYS SOFTWARE SOLUTIONS LTD.; II. THIRDWARE SOLUTIONS LTD.; III. INFOSYS TECHNOLOGIES LTD.; IV. SANKHYA INFOTECH LTD.; V. FOURSOFT LTD.; VI. TATA ELXSI LTD.; AND VII. BODHTREE CONSULTING LTD. 7. THE LEARNED COUNSEL FOR ASSESSEE EXPLAINED THAT TPO HAS SELECTED VARIOUS COMPARABLES AND ULTIMATELY THE LE ARNED CIT(A) EXCLUDED SOME AND CONFIRMED 16 COMPARABLES AS COMPA RABLE COMPANIES TO ASSESSEE FOR ARRIVING AT ARMS LENGTH MARGIN. OUT OF THE SAID COMPANIES, ASSESSEE HAS NO OBJECTION WITH REFE RENCE TO THE FOLLOWING 9 COMPANIES: 1. FLEXITRONICS (SEG) 2. GEOMETRIC SOFTWARE SOLUTIONS CO LTD. 3. IGATE GLOBAL SOLUTIONS LTD. 4. LANCO GLOBAL SYSTEMS LTD. 5. LARSEN & TOUBRO INFOTECH LTD. 4 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. 6. R S SOFTWARE (INDIA) LTD. 7. SASKEN COMMUNICATION TECHN LTD. (SEG) 8. SASKEN NETWORK SYSTEMS LTD. 9. VISUALSOFT TECHNOLOGIES LTD. (SEG) 8. ASSESSEES OBJECTION IS WITH REFERENCE TO BALANC E 7 COMPARABLES CONFIRMED BY THE CIT(A) VIDE PARA 16 OF HIS ORDER. THE LEARNED COUNSEL PLACED ON RECORD VARIOUS PAPER BOOK S, PB-A(398 PAGES), PB-B(948 PAGES), PB-C (PAGES 952 TO 1032) A ND PB-D CASE LAW(PAGES 1034 TO 1151) AND MADE SUBMISSIONS WITH R EFERENCE TO THE ABOVE 7 COMPARABLES, AS UNDER: 1. EXENSYS SOFTWARE SOLUTIONS LTD., THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SH OULD BE REJECTED UNDER THE FOLLOWING TPOS FILTERS: A) FUNCTIONALLY DIFFERENT: THE COMPANY IS A SO FTWARE PRODUCT AND ITES COMPANY. THE COMPANY OWNS SIGNIFICANT BRAN D INTANGIBLES (ALMOST 60% OF ITS NET BLOCK OF ASSETS) , UNLIKE THE APPELLANT, WHICH IS A CONTRACT CAPTIVE SERVICES PRO VIDER. FURTHER, VARIOUS DISCLOSURES ON THE SITE OF THE COM PANY ALSO INDICATE THAT IT IS INTO PRODUCT DEVELOPMENT. B) EXCEPTIONAL YEAR OF OPERATIONS: THERE WAS AM ALGAMATION OF THE COMPANY WITH HOLOOL INDIA LTD. WITH RETROSPE CTIVE EFFECT FROM APRIL 01, 2004, WHICH HAD A MATERIAL/SI GNIFICANT IMPACT ON THE RESULTS OF THE COMPANY FOR FINANCIAL YEAR ENDED MARCH 31, 2005 AND CONFIRMED BY THE COMPANY IN ITS RESPONSE TO 133(6) NOTICE. C) ERROR IN MARGIN COMPUTATION: THE LD TPO HAS EXCLUDED THE DEFERRED REVENUE EXPENDITURE WHILE COMPUTING TH E NET MARGIN OF THE COMPANY. IF THE SAME IS INCLUDED, THE NET MARGIN OF THE COMPANY WOULD BE 32.68%. IT WAS SUBMITTED THAT THA FOLLOWING RULINGS HAVE AN ALYSED AND REJECTED THIS COMPANY AS IT HAS SOFTWARE PRODUCTS A ND HELD AS NOT COMPARABLE TO A SERVICE PROVIDER: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - INTEGRATED DECISIONS & SYSTEMS INDIA (P) LTD. VS. D CIT (ITA NO. 27/JP/2011) 5 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) 2. THIRDWARE SOLUTIONS LTD.: LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUN CTIONALLY DIFFERENT FROM THE FOLLOWING: AS PER REPLY TO NOTICE ISSUED U/S 133(6), THE COMP ANY INFORMED THAT IT IS ENGAGED IN IMPLEMENTATION AND C USTOMER SERVICES WHICH INCLUDE TRAINING, CUSTOMIZED DEVELOP MENT AND HELP DESK SERVICES FOR ERP SOFTWARE AND DISTRIBUTIO N OF PRODUCTS OF QUAD INC. AND HYPERION SOLUTIONS CORPOR ATION. VARIOUS NEWS ARTICLES AVAILABLE ON THE INTERNET HTTP://WWW.HINDUONNET.COM/2001/07/11/STORIES/061100 0H.HTM STATED THAT THE COMPANY IS A DISTRIBUTOR OF PRODUCT S; AS PER THE COMPANYS WEBSITE WWW.THIRDWARE.NET/OURCAPABILITIES.HTM. HAS STATED T HE COMPANY HAS PARTNERED WITH QAD INC TO DELIVER THE E NTIRE BUSINESS CYCLE OF MGF/PRO, A PRODUCT OF QAD INC. FR OM PRE- SALES, SALES, TRAINING, CONSULTING, IMPLEMENTATION AND SUPPORT TO APPLICATION MANAGEMENT SERVICES. THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED T HIS COMPANY AS IT IS INTO TRADING OF SOFTWARE LICENSES: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) - E-GAIN COMMUNICATIONS (P) LTD. VS. ITO, 23 SOT 385. 3. INFOSYS TECHNOLOGIES LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES INCLUDING PRODUCTS, CONSULTA NCY & SOLUTIONS AND THIS COMPANY COMMANDS A PREMIUM IN THE PRICING OF I TS PRODUCTS AND SERVICES DUE TO ITS GOODWILL, REPUTATION AND BRAND VALUE. FURTHER DUE TO SCALE OF OPERATIONS, INFOSYS ENJOYS ECONOMIES OF SCALE, WHICH RESULTS IN LOWER COST OF INFRASTRUCTURAL FACILITIES AND OVERHEADS. FURTHER, HE SUBMITTED THAT THE ISSUE OF COMPARABILI TY OF INFOSYS TO A SMALL CAPTIVE SERVICE PROVIDER IS NO LONGER RE S-INTEGRA. THE FOLLOWING CASES HAVE SPECIFICALLY ANLAYSED IN DETAI L THE COMPARABILITY 6 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. OF INFOSYS ON VARIOUS PARAMETERS TO A SIMILAR SIZE SOFTWARE SERVICE PROVIDER AND REJECTED IT: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - VIRTUSA INDIA PVT. LTD. VS. DCIT (ITA NO. 1962/H/ 2010) - PATNI TELECOM SOLUTIONS PVT. LTD. VS. ACIT (ITA N O. 1846/HYD/2012) - ADAPTEE (INDIA) PVT. LTD. VS. DCIT (ITA NO. 1801/ HYD/2009) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 6 45/HYD/09) - TRILOGY E BUSINESS SERVICES SOFTWARE LTD. VS. DCI T (ITA NO. 1054/BANG/2011 PARA 20) - TELCORDIA TECHNOLOGIES INDIA P LTD. (ITA NO. 7821 /MUM/2011 PARA 7.4) - CORDYS SOFTWARE INDIA PVT. LTD. VS. ACIT (ITA NO. 1972/H/2011) - AGNITY INDIA TECHNOLOGIES VS. ITO (ITA NO. 3856/D EL/2010) - AGNITY INDIA TECHNOLOGIES PVT. LTD. VS. ITO (HIGH COURT DECISION ITA 1204/2011) 4. SANKHYA INFOTECH LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM THE FOLLOWING: VARIOUS DISCLOSURES IN THE ANNUAL REPORT AND RESPO NSE TO 133(6) NOTICE INDICATES CLEARLY THAT THE COMPANY IS INTO SOFTWARE PRODUCTS (SERVICES ARE SUPPLEMENTARY TO PR ODUCTS LICENSING) THE TP OFFICE HAS IN SUBSEQUENT YEAR REJECTED THIS COMPANY AS COMPARABLE RELYING ON THE SAME 133(6) RESPONSE. THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED T HIS COMPANY AS IT HAS SOFTWARE PRODUCTS: - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - INTEGRATED DECISIONS & SYSTEMS INDIA (P) LTD. VS. D CIT (ITA NO. 27/JP/2011) - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 6 45/HYD/09) 7 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. 5. FOURSOFT LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM VARIOUS DISCLOSURES IN TH E ANNUAL REPORT (DIRECTORS REPORT, MANAGEMENT DISCUSSION AND WEBSIT E INFORMATION) INDICATES CLEARLY THAT THE COMPANY IS INTO SOFTWARE PRODUCTS. THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED THIS C OMPANY AS IT HAS DERIVED INCOME FROM SOFTWARE LICENSE AND AMCS: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 6 45/HYD/09) 6. TATA ELXSI LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHA LL BE REJECTED AS COMPARABLE SINCE IT IS A SPECIALIZED EM BEDDED SOFTWARE DEVELOPMENT COMPANY AND THIS COMPANY HAS IN FACT CL EARLY STATED IN ITS RESPONSE TO 133(6) NOTICE THAT DUE TO THE COMPL EX SEGMENTS IN WHICH THEY ARE OPERATING, IT IS NOT COMPARABLE TO A NY OTHER SOFTWARE SERVICES COMPANY. THE FOLLOWING RULINGS HAVE ANALYSED THIS COMPANY AN D RELYING ON THE SAME 133(6) RESPONSE, REJECTED IT AS A COMPA RABLE TO SOFTWARE SERVICES PROVIDER: - CONEXANT SYSTEMS INDIA PVT. LTD. (ITA NO. 1429/HY D/2010 AND 1978/HYD/2011) - TELCORDIA TECHNOLOGIES INDIA P. LTD. (ITA NO. 7821/MUM/2011) - LOGICA PVT. LTD. (IT(TP)A NO. 1129/BANG/2011) 7. BODHTREE CONSULTING LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHO ULD BE REJECTED UNDER THE FOLLOWING TPOS FILTERS: RELATED PARTLY TRANSACTIONS FILTER: AS PER SCHEDUL E 4 OF THE BALANCE SHEET, THE COMPANY HAS INVESTMENTS IN PERIG ON, LIC, USA AND AS PER THE RESPONSE U/S 133(6); THE CO MPANY HAS EXPORT SALES TO PERIGON LIC, USA OF RS. 133.90 LAKHS, BEING 34.68% OF THE TOTAL TURNOVER. FUNCTIONALLY DIFFERENT FILTER: THE COMPANY IN ITS RESPONSE TO NOTICE U/S 133(6) HAS STATED THAT IT PROVIDES E-PAP ER 8 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. SOLUTIONS, DATA CLEANSING SOFTWARE, WEBSITE DEVELOP MENT AND OTHER CUSTOMIZED SOFTWARE AND ALSO STATE THAT THE E -PAPER SOLUTIONS AND DATA CLEANSING SERVICES WOULD COME UN DER THE CATEGORY OF IT ENABLED SERVICES. 9. EVEN THOUGH DETAILED SUBMISSIONS WERE MADE WITH REFERENCE TO THE ABOVE 7 COMPANIES, THE LEARNED COUNSEL FAIRLY A DMITTED THAT EVEN ONE COMPANY I.E., EXENSYS SOFTWARE SOLUTIONS LTD. I S EXCLUDED, INCLUSION OF OTHER COMPANIES WILL BECOME ACADEMIC I N NATURE AS THE ARMS LENGTH MARGIN IS WITHIN ASSESSEES MARGIN OF 16.74%. WITH REFERENCE TO THIS COMPANY, THE LEARNED COUNSEL REFE RRING TO REPLIES GIVEN TO AP/TPO IN RESPONSE TO THE NOTICES U/S 133( 6) AND THEIR ANNUAL REPORTS, WHICH ARE AVAILABLE IN ITS PAPER BO OK, SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND THE OPE RATIONS ARE EXCEPTIONAL AS THERE WAS A MERGER IN THE YEAR WITH ANOTHER COMPANY WHICH HAD A MATERIAL/SIGNIFICANT IMPACT ON THE PROF IT MARGINS AND FURTHER THE COMPUTATIONS ARE ALSO WRONG AS THE DIFF ERED REVENUE EXPENDITURE, WHICH WAS CLAIMED REGULARLY ON THE BAS IS OF ACCOUNTING POLICY OF THE COMPANY, WAS EXCLUDED BY THE TPO IN A RRIVING AT A DIFFERENT HIGHER PROFIT MARGIN, WHICH IS NOT CORRE CT. 10. THE LEARNED DR, HOWEVER, REFERRED TO THE DETAIL ED ORDER BY THE AO AND TPO WITH REFERENCE TO THE COMPARABLES. 11. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE R ECORD INCLUDING PAPER BOOKS PLACED ON RECORD. THERE IS A MERIT IN ASSESSEES CONTENTIONS ABOUT NON-COMPARABILITY OF V ARIOUS COMPARABLE COMPANIES SELECTED BY THE TPO. 12. AS REGARDS THE EXENSYS SOFTWARE SOLUTIONS LTD., AS SEEN FROM THE PAPER BOOK PLACED ON RECORD, THERE IS A MERGER OF HOLOOL INDIA LTD. AND IN THE DIRECTORS REPORT (PB-951), THERE I S A CLEAR MENTION THAT THE COMPANYS INCOME OF RS. 737.79 LAKHS IS POSSIBL E WITH THE AMALGAMQATION OF HOLOOL INDIA LTD. IT WAS FURTHER M ENTIONED THAT 9 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. ASSESSEE COMPANY HAS GOT BENEFIT BY ADVANCED LATEST TECHNICAL EXPERTISE ON VARIOUS TECHNOLOGY DOMAINS OF THE TRAN SFEROR COMPANY. FURTHER, THAT COMPANY HAS CHARGED DEFERRED EXPENDIT URE AND THE AMOUNT CLAIMED IN THIS YEAR IS RS. 1.22 CRORES AS A GAINST RS. 30.21 LAKHS IN EARLIER YEAR. THIS WAS CLEARLY STATED IN N OTES THAT CLAIM WAS WITH REFERENCE TO THE AS-14 AND ALSO DUE TO AMALGAM ATION OF TWO COMPANIES. VIDE PAGE 957 OF PAPER BOOK, IT WAS SEEN THAT OUT OF GROSS ASSETS OF RS. 7.95 CRORES, BRANDS ALONE CONSI ST OF RS. 5 CRORES, THEREFORE, INTANGIBLE ASSETS COMPRISING OF SUBSTANT IAL PART OF THIS COMPANYS ASSETS. NOT ONLY IN THE CORRESPONDENCE W ITH THE TPO THAT ASSESSEE EXPRESSED ITS INABILITY TO FURNISH SEPARAT E ACCOUNTS FOR TWO AMALGAMATED COMPANIES BUT ALSO FURTHER IT HAS CLEA RLY MENTIONED VIDE LETTER DATED 26-04-2007 TO THE TPO THAT THERE IS A GAP IN THE EXPENDITURE EXPECTED TO INCUR AND ACTUAL EXPENDITUR E INCURRED WHICH MADE THE COMPANY RECORD HIGH OPERATING MARGIN ON CO ST. THESE FACTORS INDEED SUPPORT ASSESSEES CONTENTION THAT T HIS EXCEPTIONAL PROFIT WITH THE FACT OF AMALGAMATION EFFECTED OPER ATING PROFIT OF THE COMPANY AND THIS CANNOT BE TAKEN AS COMPARABLE. OTH ER ISSUES WERE ALSO ANALYSED AND ACCEPTED IN VARIOUS CASES AS RELI ED UPON BY THE LEARNED COUNSEL. IN THE CASE OF INTOTO SOFTWARE IND IA PVT. LTD.,(SUPRA) THIS COMPARABLE CASE WAS ANALYSED AND HELD AS UNDER : 17. HAVING HEARD BOTH PARTIES AND HAVING CONSIDERED THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT ASSESSEE HAS ACCEPTED THE EXENSYS SOFT WARE SOLUTIONS LIMITED AS ONE OF THE COMPARABLE COMPANI ES WHEN PROPOSED BY THE TPO. HOWEVER, THE FACT THAT TH ERE IS AN AMALGAMATION OF TWO COMPANIES I.E., EXENSYS SOFT WARE LIMITED AND HOLOOL INDIA LIMITED, THE RESULTS OF WH ICH, HAS RESULTED IN HIGH OPERATING MARGIN CANNOT BE LOST SI GHT FOR. IT HAS BEEN HELD IN MANY CASES BY THIS TRIBUNAL AS WEL L AS THE HIGHER FORUMS THAT TO COMPARE A COMPANY WITH ANOTHE R COMPANY, BOTH THE COMPANIES HAVE TO BE BROUGHT ON P AR 10 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. WITH EACH OTHER AFTER MAKING THE NECESSARY ADJUSTME NTS WHEREVER NECESSARY AND POSSIBLE. HOWEVER, WHERE THE RE ARE EXTRAORDINARY EVENTS SUCH AS THIS, THEN THOSE EVEN TS HAVE TO BE TAKEN NOTE OF AND WHERE NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF THIS EXTRAORDINARY EVENT, THEN SUCH C OMPANY CANNOT BE CONSIDERED AS A COMPARABLE. THE OBJECTIO NS TO THIS COMPANY BY ASSESSEE ARE MADE FOR THE FIRST TIM E BEFORE THE TRIBUNAL. THE TRIBUNAL BEING THE FINAL F ACT FINDING AUTHORITY IS BOUND TO TAKE NOTE OF THE OBJECTIONS O F ASSESSEE. AS THE MATERIAL RELIED UPON BY THE LEARNE D COUNSEL FOR ASSESSEE CLEARLY DENOTES THAT THERE IS AN EXTRAORDINARY EVENT WHICH HAS RESULTED IN THE HIGH OPERATING MARGIN OF THE COMPANY, WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR RECONSIDERATION. IF IT IS FOUND TH AT THERE IS AN AMALGAMATION OF EXENSYS SOFTWARE LIMITED AND HOL OOL INDIA LIMITED AND FORMED AS ONE ENTITY VIZ.,EXENSYS SOFTWARE SOLUTIONS LIMITED. DURING THE RELEVANT PRE VIOUS YEAR AND THE FINANCIAL RESULT IS THE COMBINED RESUL T OF THESE TWO COMPANIES, THEN, WE DIRECT THE ASSESSING OFFICE R/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. 13. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THA T THERE IS AN EXTRA-ORDINARY EVENT WHICH RESULTED IN HIGH OPERATI NG MARGIN OF THAT COMPANY AND WE, THEREFORE, DIRECT THE AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. IN THE ABOVE REFERRE D CASE OF INTOTO SOFTWARE INDIA PVT. LTD., COMPLETE DETAILS WERE NOT PLACED ON RECORD, THEREFORE, THE MATTER WAS SENT TO AO FOR VERIFICATI ON WHEREAS IN THIS CASE ASSESSEE HAS OBJECTED EVEN BEFORE THE AO/ CIT( A), THEREFORE, THERE IS NO NEED TO SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR EXAMINATION AS WAS DONE IN THE CASE OF INTOTO SOFTW ARE(SUPRA). WE ARE, THEREFORE, OF THE OPINION THAT ON THE BASIS OF FACTS PLACED ON RECORD, THE CASE OF EXENSYS SOFTWARE SOLUTIONS LTD. CANNOT BE TAKEN 11 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. AS COMPARABLE. SIMILARLY, THE OTHER CASES, THIRDWAR E SOLUTIONS LTD., INFOSYS, SANKHYA INFOTECH LTD., ETC, AS MENTIONED A BOVE, ARE ALSO TO BE EXCLUDED. HOWEVER, AS POINTED OUT BY THE LEARNED COUNSEL THE EXCLUSION OF OTHER COMPANIES BECOMES ACADEMIC. IN V IEW OF THIS, WE ARE NOT DISCUSSING OTHER COMPARABLES IN DETAIL, BUT , SUFFICE TO SAY THAT ASSESSEES SUBMISSIONS ARE VALID. THE AO IS DIRECTE D TO EXCLUDE THE ABOVE COMPARABLE AND RE-WORK OUT THE ARMS LENGTH M ARGIN ACCORDINGLY. THE GROUND NO.1 (1.0 TO 1.7) RAISED BY ASSESSEE ARE CONSIDERED AS ALLOWED. 14. GROUND NO. 2 IS WITH REFERENCE TO DENYING THE B ENEFIT/ REDUCTION OF 5% FROM THE ARITHMETIC MEAN AS PROVIDED IN PROVI SO TO SECTION 92C(2) OF THE ACT. THIS BEING LEGAL CLAIM AO IS DIR ECTED TO EXAMINE THE SAME WHILE GIVING EFFECT TO THIS ORDER. 15. GROUND NO. 3 IS WITH REFERENCE TO THE EXCLUSION OF AN AMOUNT OF RS. 2,65,83,392/- BY THE AO FROM THE EXPORT TURNOVE R FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE IT ACT ON THE REASON THAT THE SAME WAS NOT REALIZED WITHIN THE STIPULATED TIME. T HE SAME WAS CONFIRMED BY THE LEARNED CIT(A). 16. BEFORE US, IT WAS SUBMITTED THAT ASSESSEE HAS M OVED AN APPLICATION BEFORE THE AO ON THIS ISSUE U/S 154 OF THE ACT AND THE SAME WAS KEPT PENDING AS THE ISSUE WAS ALSO AGITATE D IN APPEAL. APART FROM EXPLAINING THE FACTS INVOLVED IN THIS AM OUNT, THE LEARNED COUNSEL PLEADED THAT IT WOULD BE SUFFICIENT IF A DI RECTION IS GIVEN TO THE AO TO EXAMINE THE ISSUE U/S 154 AND ALLOW THE NECES SARY RELIEF. THE LEARNED DR HAS NOT OBJECTED TO THE SAID SUBMISSIONS OF THE LEARNED COUNSEL. 17. AFTER HEARING THE PARTIES AND PERUSING THE COPY OF THE APPLICATION PLACED ON RECORD AT PAGES 776 TO 779 OF THE PAPER BOOK, WE ARE OF THE OPINION THAT THERE IS NO NEED FOR ADJ UDICATION OF THIS 12 ITA NO. 1612/HYD/2010 M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PVT. LTD. GROUND WHEN THE MATTER IS PENDING BEFORE THE AO U/S 154. AO IS DIRECTED TO EXAMINE THE ISSUE AND CONSIDER NECESSAR Y RELIEF TO ASSESSEE REGARDING THE AMOUNTS RECEIVED WITHIN 12 M ONTHS AS PER THE DIRECTIONS OF RBI VIDE ITS GENERAL CIRCULAR DAT ED 01-11-2004 ISSUE. FURTHER, TO ALSO EXAMINE THE CLAIM OF PERMIS SION FROM RBI AND CLAIM OF NETTING FROM THE AMOUNTS RECEIVABLE. THESE CLAIMS ARE TO BE EXAMINED BY AO. ACCORDINGLY, THE AO IS DIRECTED TO GIVE AN OPPORTUNITY TO ASSESSEE TO EXPLAIN AND DECIDE THE I SSUES BASED ON FACTS AND LAW. WITH THESE DIRECTIONS, GROUND NO. 3 IS CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES. 18. GROUND NO. 4 IS PERTAINING TO CHARGING OF INTER EST U/S 234B & 234D. SINCE CHARGING OF INTEREST UNDER THESE SECTIO NS IS CONSEQUENTIAL IN NATURE, GROUND DOES NOT REQUIRE AN Y ADJUDICATION. 19. IN THE RESULT, APPEAL OF ASSESSEE IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 23 RD DAY OF OCTOBER, 2013. SD/- SD/- (SAKTIJIT DEY) (B. R AMAKOTAIAH) JUDICIAL MEMBER ACCOUNT ANT MEMBER HYDERABAD, DATED: 23 RD OCTOBER, 2013. KV COPY TO:- 1) . M/S NTT DATA INDIA ENTERPRISE APPLICATION SERV ICES PVT. LTD., 5 TH FLOOR, I LABS CENTRE, PLOT NO. 18, SOFTWARE UNITS LAYOUT, MADHAPUR, HYDERABAD 560 061. 2) ASST. CIT, CIRCLE 2(1), HYDERABAD . 3) CIT(A)-III, HYDERABAD. 4) CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A .T., HYDERABAD.
Mehul