Goldman Sachs Services Private Limited, Bangalore V. DCIT, Bangalore

ITA 1685/BANG/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90051 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 02-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K MISHRA CITIII
• Keywords: Business income; Transfer pricing; Principle of natural justice; International transaction; Question of law; Working capital adjustments; Bad and doubtful debts; Scheme of amalgamation
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH C, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER IT(TP)A NO.1685(B)/2012 (ASSESSMENT YEAR : 2008-09) M/S GOLDMAN SACHS SERVICES PVT. LTD. CRYSTAL DOWNS, EMBASSY GOLF LINKS BUSINESS PARK, OFF INTERMEDIATE RING ROAD, BANGALORE-560 071 PAN NO.AACCG2435N APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRLCE-11(3), BANGALORE RESPONDENT ASSESSEE BY : SHRI AJITHKUMAR JAIN, CA REVENUE BY : SHRI R.K.MISHRA, CIT-III DATE OF HEARING : 02-07-2015 DATE OF PRONOUNCEMENT : 17-07-2015 O R D E R PER SHRI VIJAY PAL RAO, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 19-10-2012 PASSED U/S143(3) R.W.S.144C OF THE IT ACT IN PURSUANT TO THE DIRECTIONS OF THE DRP DATED 26-09-2 012 FOR THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE HAS FILED THE FOLLOWING CONCISE GRO UNDS; IT(TP)A NO .1685(B)/12 2 1. THE ORDER PASSED BY THE DRP AND THE LD.AO/TPO I S NOT IN ACCORDANCE WITH THE LAW AND IS CONTRARY TO T HE FACTS AND CIRCUMSTANCES OF THE PRESENT AND IN ANY CASE IN VIOLATION OF THE PRINCIPLE OF EQUITY AND NATURAL JUSTICE. TRANSFER PRICING 2. THE HONBLE DRP AND THE LD.AO/TPO HAVE ERRED IN LAW AND ON FACTS IN REJECTING WITHOUT APPRECIATE RE ASONS, THE DETAILED BENCHMARKING ANALYSIS CONDUCTED BY THE APP ELLANT AND EMBARKING ON A FRESH SEARCH FOR COMPARABLES. 3. THE HONBLE DRP AND THE LD.AO/TPO ERRED IN FACT AND IN LAW IJ DETERMINING THE ALP BY ADOPTING THE F INANCIAL DATA FOR A SINGLE YEAR(I.E THE FINANCIAL YEAR 2007- 08) OF THE COMPARABLE AS AGAINST MULTIPLE YEAR DATA CONSIDERED BY THE APPELLANT. 4. THE DRP AND THELD.AO/TPO ERRED IN FACT AND IN L AW IN USING SELECTIVE INFORMATION, WHICH WAS NOT AVAIL ABLE IN PUBLIC DOMAIN, OBTAINED U/S133(6) OF THE IT ACT AND IDENTIFYING ADDITIONAL COMPARABLES BASED ON THE SAM E. 5 THE HONBLE DRP AND THE LD.AO/TO HAS ERRED IN DETERMINING THE ALP BASED ON CO. WHICH ARE NOT COM PARABLE TO THE APPELLANT DUE TO VARIOUS FACTORS SUCH AS FUN CTIONAL COMPARABILITY, PRODUCT/INTANGIBLE SEGMENT FINANCIAL S, IRRECONCILABLE DIFFERENCES IN ACCOUNTING POLICY EXT RA ORDINARY EVENTS/BUSINESS RESTRUCTURING ABNORMAL FLUCTUATION IN MARGINS, EXCEPTIONAL YEAR, LOWER EMPLOYEE COST LEVE LS, FAILS TPOS OWN FILTERS ETC. IT(TP)A NO .1685(B)/12 3 6. THE HONBLE DRP AND THE LD.TPO/AO HAS ALSO ERRE D IN SELECTING COMPANIES WHICH HAVE EARNED SUPER PROF ITS AND SUPER GROWTH NOT IN LINE WITH THE INDUSTRY EVEN THO UGH A FILTER WAS APPLIED BY THE LEARNED TPO TO REJECT LOSS MAKIN G AND DECLINING REVENUE COMPANIES. 7. THE HONBLE DRP AND THE LD.AO/TPO ERRED IN REJECTING CERTAIN COMPANIES SELECTED IN THE TRANSFE R PRICING STUDY OF THE APPELLANT BASED ON INCORRECT REASONS. 8. THE HONBLE DRP AND THE LD.AO/TPO ERRED IN LAW AND ON FACTS IN UPHOLDING THE AL MARGIN ARRIVED AT Y THELD.TPO BY NOT CONSIDERING THE BENEFIT OF THE 5 P ERCENT TOLERANCE RANGE ALLOWED UNDER THE ACT AND THE RULES . 9. THE LD.AO/HONBLE DRP HAVE ERRED IN NOT GRANTIN G APPROPRIATE WORKING CAPITAL ADJUSTMENTS TO THE APPE LLANT BASED ON THE APPROPRIATE WORKING CAPITAL ADJUSTMENT WORKINGS WHICH WERE PROVIDED BY THE APPELLANT. 10.THE LD.AO/HONBLE DRP HAVE ERRED IN UPHOLDING T HE LD.TPOS ACTION OF NOT MAKING FURTHER DOWNWARD MAR GIN ADJUSTMENT TO CONSIDER THE RISK, DIFFERENTIALS BETW EEN THE APPELLANT AND THE COMPARABLE COMPANIES, THEREBY REJ ECTING THE RISK ADJUSTMENT WORKINGS PROVIDED BY THE APPELL ANT. 11. THE LD.TPO ERRED IN COMPUTING THE OPERATING MARGINS OF THE COMPARABLE CO. AT HIGHER LEVELS AND DETERMINING THE OPERATING MARGIN OF THE APPELLANT T O BE LOWER THAN THE MARGIN ACTUALLY EARNED BY THE APPELLANT, A ND THE HONBLE DRP AND THE LD.AO HAVE ERRED IN UPHOLDING T HE SAME. IT(TP)A NO .1685(B)/12 4 12. THE HONBLE DRPLD.AO HAVE ERRED IN LAW AND ON FACTS IN UPHOLDING THE TPOS ACTION OF ADDING THE R ECOVERY OF EXPENDITURE RECEIVED FROM THE ASSOCIATED ENTERPRISE S AMOUNTING TO RS.3,18,81,914/- TO THE OPERATING COST AND OPERATING REVENUE OF ITES SEGMENT WHILE DETERMINING ALP FOR INTERNATIONAL TRANSACTIONS. THE HONBLE DRP/TPO H AVE ERRED IN INCLUDING THE RECOVERY OF EXPENSES TO THE OPERAT ING INCOME AND OPERATING COSTS OF THE APPELLANT. 13. THE HONBLE DRP/LD.AO HAVE ERRED IN LAW AND ON FACTS IN NOT CONSIDERING FOREIGN EXCHANGE GAIN/LOS S AND PROVISION FOR BAD DEBTS AS OPERATING ITEMS WHILE CO MPUTING THE MARGINS FOR BENCHMARKING. 14. THE HONBLE DRP AND THE AO/TPO HAVE ERRED IN F ACT AND IN LAW IN APPLYING THE PROVISIONS OF TP TO THE APPELLANT WITHOUT APPRECIATING THE FACT THAT THE APPELLANT WA S ENTITLED TO 100 PERCENT DEDUCTION OF PROFITS U/S 10A DURING THE RELEVANT YEAR AND THEREFORE, THERE WOULD BE NOT BE ANY MOTIVE TO SHIFT PROFITS TO THE OTHER COUNTRY. ADJUSTMENT UNDER THE SEC.10A OF THE ACT. 15. THE HONBLE DRP AND THE LD.AO HAS ERRED IN LAW AND IN FACTS IN CONCLUDING THAT THE COMMUNICATION E XPENSES (BEING LEASE LINE CHARGES OF 2,29,89,758/-) ARE TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTA TION OF RELIEF UNDER THE SEC.10A OF THE ACT. 16. THE HONBLE DRP HAS ERRED IN LAW AND ON FACTS I N UPHOLDING THE LD. AOS CONCLUSION THAT THE SAID EX PENSE IT(TP)A NO .1685(B)/12 5 SHOULD NOT BE REDUCED FROM TOTAL TURNOVER FOR THE P URPOSE F COMPUTATION OF RELIED UNDER SECTION 10A OF THE ACT. DISALLOWANCE UNDER SECTION 40A(IA) OF THE ACT. 17. THE HONBLE DRP LD.AO HAS ERRED IN DISALLOWING AN AMOUNT OF RS.7,42,22,683/- UNDER SECTION40(A)(I) OF THE ACT AND UPHOLDING CONCLUSION THAT THE APPELLANT HAS FAI LED TO DEDUCT TAX AT SOURCE ON PAYMENTS MADE TO CERTAIN N ON- RESIDENT VENDORS WHICH ARE IN THE NATURE OF ROYALTY FEES FOR TECHNICAL SERVICE (FTS) AND WERE SUBJECT TO TAX DED UCTION AT SOURCE (TDS) UNDER PROVISIONS OF CHAPTER-XVIIB OF T HE ACT, WITHOUT CONSIDERING THE BENEFICIAL PROVISIONS OF TH E RELEVANT TAX TREATY. 3. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY SPECIFIC ADJUDICATION. 3.1 AT THE TIME OF HEARING, LEARNED AR OF THE ASSE SSEE HAS SUBMITTED THAT THE ASSESSEE DOES NOT PRESS GROUND NO.2 TO 4,6 TO 14 AND 17 OF THE GROUNDS OF APPEAL. THEREFORE, IT WAS PLEADED THAT THE GROUND NO.2 TO 4 AND 6 TO 14 AND 17 MAY BE DISMISSED AS NOT PRESSED. 4. THE LEARNED DR HAS NOT OBJECTED IF THE GROUND AS PRAYED ARE DISMISSED AS NOT PRESSED. ACCORDINGLY, GROUND NO.2 TO 4, 6 TO 14 AND 17 ARE DISMISSED BEING NOT PRESSED. THUS, THE ONLY GR OUNDS IN THE APPEAL OF IT(TP)A NO .1685(B)/12 6 THE ASSESSEE ARE LEFT FOR OUR CONSIDERATION AND ADJ UDICATION ARE GROUND NO.5,15 & 16. 5. GROUND NO.5 REGARDING THE TRANSFER PRICING ADJU STMENT MADE BY THE TPO AND CONFIRMED BY THE DRP. THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF EXPORT OF SOFTWARE DEVELOPMENT SERV ICES AND ITES SERVICES. THERE IS NO DISPUTE AS FAR AS THE INTERNATIONAL TRA NSACTIONS OF THE ASSESSEE IN THE SEGMENTS OF OFTWARE DEVELOPMENT SERVICES. THE DISPUTE BEFORE US IS ONLY IN RESPECT OF THE INTERNATIONAL TRANSACTIONS C ARRIED OUT BY THE ASSESSEE IN THE ITES SEGMENT. THE ASSESSEE IS A SU BSIDIARY OF GOLDMAN SACHS MAURITIUS LLP. THE ASSESSEE PROVIDES FOLLOWI NG SERVICES TO GOLDMAN SACHS GROUP COMPANIES. I) BANK END SERVICES TO SUPPORT BUSINESS PROCESSES IN THE AREAS OF OPERATIONS, TECHNOLOGY, SUPPORT, FINANCE, INVESTMENT BANKING, GLOBAL INVESTMENT RESEARCH, BUSINESS INTEL LIGENCE GROUP, HUMAN CAPITAL MANAGEMENT ETC. AND II) SOFTWARE DEVELOPMENT SERVICES 6. THE AE GROUP OF ASSESSEE IS A GOLDMAN INVESTMEN T BANKING SECURITIES AND INVESTMENT MANAGEMENT GROUP THAT PRO VIDES A WIDE RANGE OF SERVICES TO WORLDWIDE TO A DIVERSIFIED CLIENT SA KE. THE ASSESSEE BENCHMARK ITS TRANSACTION IN ITES SEGMENT BY SELECT ING 13 COMPARABLES AND USING 3 YEARS DATA. THE TPO REJECTED 8 COMPAR ABLES SELECTED BY THE IT(TP)A NO .1685(B)/12 7 ASSESSEE AND ADDED 15 MORE COMPARABLES FOR DETERMIN ING THE ALP IN RESPECT OF THE INTERNATIONAL TRANSACTIONS IN ITES S EGMENT. THE FINAL SET OF COMPARABLES COMPRISING 20 COMPANIES HAS BEEN GIVEN BY THE TPO AT PAGE- 14 & 15 OF THE IMPUGNED ORDER AS UNDER; SL.NO. NAME OF THE COMPANY OP/TC% 1 ACCENTIA TECHOLGIES 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 MEHA FINANCIAL SERVICES LTD (SEG.) 9.42 5 CALIBER POINT BUSINESS SOLUTIONS LTD 10.97 6 CORAL HUBS LTD (EARLIER KNOWN AS VISHAL INFORMATION TECH.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 HALTHCASRE SOLUTIONS LTD( FORMERLY KNOWN AS NITTANY OUTSOURCING SERVICES PVT.LTD) 18.54 11 ECLERX SERVICES LTD 58.80 12 GENESIS INTERNATIONAL CORPN.LTD 47.40 13 INFOSYS BPO LTD 19.66 14 ISERVICES INDIA PVT.LTD 10.77 15 JINDAL INTELLICOM PVT.LTD -10.29 16 MOLD TEX TECHNOLOGIES LTD 96.66 17 R SYSTEMS INTERNATIONAL LTD (SEG.) 4.30 18 SPANCO LTD (SEG.) EARLIER KNOWN AS SPANCO TELESYSTEMS & SOLUTIONS LTD 8.81 IT(TP)A NO .1685(B)/12 8 19 WIPRO LTD (SEG.) 30.05 20 ALILSEC TEHNOLOGIES LTD -13.29 AVERAGE 24.75 THUS, THE TPO HAS DETERMINED THE AVERAGE MARGIN OF THE COMPARABLE COMPANIES AT 24.75%. THIS SET OF COMPARABLES CONSI DERED BY THE TPO ALSO INCLUDES 5 COMPARABLES COMPANIES SELECTED BY THE AS SESSEE WHICH ARE AS UNDER; SL.NO NAME OF THE COMPARABLE COMPANY OP.MARGIN T O COST (FY 2007-08) 1 CALIBER POINT BUSINESS SOLUTIONS LTD 10.97 2 COSMIC GLOBAL LTD 23.30 3 SPANCO LTD (SEG.) EARLIER KNOWN AS SPANCO TELESYSTEMS & SOLUTIONS LTD) 8.81 4 ALLSEC TECHNOLOGIES LTD -13.29 5 R SYSTEMS INTERNATIONAL LTD ()SEG.) 4.30 THE TPO ALSO ALLOWED THE WORKING CAPITAL ADJUSTMENT AT 0.74% WHILE MAKING ADJUSTMENT ON ACCOUNT OF ALP. THE TPO WORKED OUT THE ASSESSEES OPERATING MARGIN AT 16.62% AND ACCORDINGLY, PROPOSE D AN ADJUSTMENT OF RS.30,27,18,666/- AFTER ALLOWING THE WORKING CAPITA L ADJUSTMENT AT 0.72%. THE ASSESSEE OBJECTED THE PROPOSED ADJUSTMENT OF TP O BY FILING THE OBJECTIONS BEFORE THE DRP. THE DRP REJECTED ONE CO MPARABLE OUT OF THE 20 IT(TP)A NO .1685(B)/12 9 SET OF COMPARABLE SELECTED BY THE TPO AND ALSO REVI SED THE WORKING CAPITAL ADJUSTMENT TO 2.79% INSTEAD OF 0.72%. HOWEVER, THE ASSESSEE WAS NOT SATISFIED WITH THE ORDER OF THE DRP AND CHALLENGED THE COMPARABLE SELECTED BY THE TPO IN THIS APPEAL. 7. BEFORE US, THOUGH THE ASSESSEE HAS CHALLENGED T HE ENTIRE SET OF COMPARABLES SELECTED BY THE TPO IN THE SET OF COMPA RABLES HOWEVER, THE LEARNED AR OF THE ASSESSEE HAS CONFINED HIS ARGUMEN T ONLY IN RESPECT OF 2 COMPANIES NAMELY ECLERX SERVICES LTD AND MOLD TEK TECHNOLOGIES LTD WHICH ARE AT SL.NO.11 & 16 OF THE LIST OF COMPARABL ES SELECTED BY THE TPO. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS LOW E ND ITES PROVIDING CO. WHEREAS THE ECLERX SERVICES LTD IS A HIGH END SERVI CE PROVIDING CO. AND THEREFORE, THE SAID CO. IS IN THE SERVICES OF KNOWL EDGE PROCESS OUTSOURCING (KPO). HE HAS REFERRED THE ANNUAL REPORT OF THE S AID CO. AT PAGE-135 OF THE PAPER BOOK AND SUBMITTED THAT AS PER THE MANAGE MENT COMMENTARY THE SAID CO IS A KPO PROVIDING DATA ANALYTIC AND DA TA PROCESSING SOLUTION TO SOME OF THE LARGEST BRANDS IN THE WORLD. HE HAS REFERRED SOME OF THE INSTANCES OF THE SERVICE PROVIDED BY THE ECLERX TO ITS CLIENTS AS NARRATED IN THE ANNUAL REPORT AND SUBMITTED THAT THIS CO. IS IN THE CONSULTANCY SERVICES AS WELL AS DATA ANALYTIC SOLUTION PROVIDIN G SERVICES AND THEREFORE, THIS CO. IS PROVIDING HIGH END SERVICES. ECLERX IS A VERY DIFFERENT CO. WITH INDUSTRY SPECIALIZED SERVICES FOR MEETING COMPLEX C LIENTS NEEDS. THE CO. HAS CATEGORICALLY EXPLAINED THAT THIS CO. IS A DATA ANALYTIC KPO SERVICE IT(TP)A NO .1685(B)/12 10 PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS- SE RVICES AND RETAIL AND MANUFACTURING. APART FROM THIS, THE LEARNED AR HAS POINTED OUT THAT THE ECLERX (SUPRA) HAS ALSO ACQUIRED UK BASED CO. NAMEL Y; M/S IGNETICA TRAVEL SOLUTIONS LTD., ON JULY 2007. THIS ACQUISITION HA S GIVEN THE CO. AN ENTRY PLATFORM INTO A NEW VERTICAL I.E TRAVEL AND HOSPITA LITY BESIDES, CONSOLIDATING COS POSITION IN RETAIL AND MANUFACTURING SPACE. THUS, THE LEARNED AR HAS SUBMITTED THAT THIS CO. IS FUNCTIONALLY DISSIMI LAR TO THAT OF THE ASSESSEE. FURTHER, THE CO. IS DECLARING ONLY ONE S EGMENT IN ITS OPERATIONAL REVENUES. THEREFORE, THE RESULT OF THE SAID CO. CANNOT BE COMPARED WITH THAT OF THE ASSESSEE WHICH IS IN A DIFFERENT NATURE OF ACTIVITIES WHICH IS LOW END ITES. THE LEARNED AR HAS FURTHER POINTED OUT THAT THOUGH, THE TPO FOR THEAY:2010-11 PROPOSED TO INCLUDE ECLERX SERVIC ES LTD IN THE LIST OF COMPARABLES HOWEVER, WHILE PASSING THE FINAL ORDER DATED 30.01.14 BY THE TPO ECLERX WAS EXCLUDED FROM THE FINAL SET OF COMPA RABLES SELECTED BY THE TPO. THE LEARNED AR SUBMITTED FOR THE AY: 2010-11 THE TPO ITSELF HAD EXCLUDED THIS SAID CO. BY TREATING THE SAME AS NOT COMPARABLE WITH THE ASSESSEE. HE HAS REFERRED THE SHOW CAUSE NOTICE DA TED 1.11.2013 AT PAGE- 589 OF PAPER BOOK NO.2 AND THE TPO ORDER DATED 30.1 .13 AT PAGE NO.602 OF PAPER BOOK NO.2 IN SUPPORT OF HIS CONTENTION THAT T HIS CO. WAS FOUND NOT COMPARABLE BY THE TPO FOR THE PURPOSE OF DETERMINAT ION OF ALP IN RESPECT OF ITES SEGMENT. IN SUPPORT OF HIS CONTENTION THE LEARNED AR RELIED UPON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES INDIA PVT.LTD VS ACIT 31 ITR (TRIB.) 1 AS WELL AS THE DECISION IT(TP)A NO .1685(B)/12 11 DATED 9.7.14 AND IN CASE OF LIONBRIDGE TECHNOLOGIES PVT.LTD. VS ITO IN ITA NO.7498(M)/2012. 8. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT THE OBJECTS OF ASSESSEE REGARDING LOW END SERVICES AND HIGH END SERVICES WAS DULY CONSIDERED BY THE TPO AS WELL AS BY THE DRP AND IT WAS FOUND NOT ACCEPTABLE BECAUSE F THE REASONS THAT ALL THE COMPA RABLES SELECTED BY THE TPO ARE PROVIDING ITES SERVICES. THUS, THE ASSESSE E AS WELL AS THE COMPARABLE SELECTED BY THE TPO ARE IN THE SAME BUSI NESS ACTIVITY OF ITES AND MERELY BECAUSE OF THE NOMENCLATURE OF KPO GIVEN BY SOME OF THE COS IN THEIR ANNUAL REPORT COULD NOT CHANGE THE REAL NA TURE OF SERVICES AND BUSINESS ACTIVITIES OF THESE COS. THE LEARNED AR HAS FURTHER SUBMITTED THAT WHEN THE ASSESSEE ITSELF HAS SELECTED 13 COMPA RABLES WITHOUT APPLYING THIS FILTER OF BPO/KPO THAN, THE ASSESSEE CANNOT RAISE THIS OBJECTION ONLY AGAINST COS SELECTED BY THE TPO. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE MATERIAL ON RECORD. AS IT IS CLEAR FROM THE BUSINESS PROFIL E OF THE ASSESSEE RECORDED BY THE TPO THAT THE INTERNATIONAL TRANSACTIONS IN T HE ITES PERTAINING TO DATA PROCESSING AND IN THE NATURE BACK END SERVICE SUPPORT TO THE AE GROUP OF COS. THE ASSESSEE CLAIMED THAT THE ASSES SEE IS IN LOW END DATA PROCESSING SERVICES WHICH HAS NOT BEEN DISPUTED BY THE TPO WHILE DETERMINING THE COMPARABLES AND ALP BY USING THE ME AN MARGIN OF THE 20 IT(TP)A NO .1685(B)/12 12 COMPARABLES SELECTED BY THE TPO. THERE IS NO DISP UTE REGARDING THE MOST APPROPRIATE METHOD BEING TNM METHOD ADOPTED BY THE ASSESSEE AS WELL AS THE TPO. WE FIND THAT THE COMPARABILITY AND NATURE OF SERVICES PROVIDED BY ECLERX (SUPRA) HAS BEEN EXAMINED BY THE SPECIAL BENCH IN CASE OF MAERSK GLOBAL CENTRES INDIA (P)LTD (SUPRA) IN PARA- 82 & 83 AS UNDER; 82. IN SOFAR AS M/S ECLERX SERVICES LTD IS CONCER NED, THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM O F ANNUAL REPORT FOR FINANCIAL YEAR 2007-08 PLACED AT PP.166 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY PROVIDES DATA ANALYSIS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORLD AND IS RECOGNIZED AS EXPERTS IN CHOSEN MARKETS-FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE PROVIDING COMPL ETE BUSINESS SOLUTIONS BY COMBINING PEOPLE, PROCESS IMPROVEMENT AND AUTOMATION. IT IS CLAIMED TO HAVE EMPLOYED OVER 1500 DOMAIN SPECIALISTS WORKING FOR T HE CLIENTS. IT IS CLAIMED THAT A ECLERX IS A DIFFERE NT COMPANY WITH INDUSTRY SPECIALIZED SERVICES FOR MEET ING COMPLEX CLIENT NEEDS, DATA ANALYSIS KPO SERVICE PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS FIN ANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIM ED TO BE ENGAGED IN PROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST BUT HELP THE CLIENTS INCREASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVID ING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. M/ S ECLERX SERVICES (P)LTD IS ALSO CLAIMED TO HAVE A SC ALABLE DELIVERY MODEL AND SOLUTIONS OFFERED THAT INCLUDE D ATA IT(TP)A NO .1685(B)/12 13 ANALYTICS, OPERATIONS MANAGEMENT AUDITS AND RECONCILIATION ,METRICS MANAGEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCESS OUTSO URCING AND MANAGEMENT SERVICES ALONGWITH MULTITUDE OF DATA AGGREGATION, MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE COMPANY HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY ALLOWING CUSTOMERS TO BENEFIT FROM FURTHER COST SAV ING AND OUTPUT GAINS WITH BETTER CONTROL OVER QUALITY. KEEPING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES (P)LTD AND ITS FUNCTIONAL PROFILE, WE ARE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGE D IN PROVIDING HIGH END SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW END SERVIC ES TO THE GROUP CONCERNS. 83. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIE W THAT IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASS ESSEE COMPANY FOR ITS AE ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES(P)LTD AND MOLD-TEK TECHNOLOGIES LTD. IT IS DIFFICULT TO FIND OUT ANY R ELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. WE, THEREFORE, DIRECT THAT T HESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 COMPAR ABLES FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTIONS O F THE DRP. IT(TP)A NO .1685(B)/12 14 10. THUS, IT IS CLEAR THAT THE FUNCTIONAL PROFILE OF ECLERX SERVICE (P)LTD (SUPRA) WAS EXAMINED BY THE SPECIAL BENCH AN D IT WAS FOUND THAT THE SAID CO. IS MAINLY ENGAGED IN PROVIDING HIGH EN D SERVICES INVOLVING SPECIALIZED EXPERTISE IN THE FIELD AND THE SAME CAN NOT BE COMPARED WITH A CO. MAINLY ENGAGED IN PROVIDING LOW END SERVICES TO ITS GROUP CONCERNS. WE FURTHER NOTE THAT BY FOLLOWING THE DECISION OF T HE SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL CENTRES INDIA LTD. THE CO-OR DINATE BENCH OF MUMBAI TRIBUNAL IN CASE OF M/S LIONBRIDGE TECH.PVT. LTD.(SUPRA) AS OBSERVED IN PARA-8 AS UNDER; 8. IN RESPECT OF COMPARABLE ECLERX SERVICES LTD, A S INCLUDED BY TPO, WE FOUND THAT THIS COMPANY IS KNOWLEDGE PROCESS OUTSOURCING (KPO) ENGAGED IN PROVIDING DATA ANALYSIS AND DATA PROCESS SOLUTIONS. ONLINE OPERATION SUPPORT, CUSTOMER RELATIONSHIP MANAGEMENT SUPPORT, DATA DE-DUPLICATION SERVICES ET C. SINCE FUNCTIONALLY, IT IS DIFFERENT FROM ASSESSEE-C OMPANY, DRP WAS NOT JUSTIFIED IN NOT EXCLUDING THE SAME FRO M THE LIST OF COMPARABLES. 11. HAVING REGARD TO THE NATURE OF THE SERVICES PR OVIDED BY THE ASSESSEE TO ITS GROUP CONCERN IN COMPARISON TO THE NATURE OF SERVICES PROVIDED BY ECLERX SERVICE LTD.,(SUPRA) TO ITS CLIE NT WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW THAT OF THE SPECIAL BENCH IN CASE OF M/S MAERSK GLOBAL INDIA PVT.LTD. AS WELL AS IN CASE OF M/S LIONBRIDGE TECH.PVT.LTD.(SUPRA) ACCORDINGLY, FOLLOWING THE DEC ISION OF THE SPECIAL IT(TP)A NO .1685(B)/12 15 BENCH IN CASE OF M/S MAERSK GLOBAL INDIA PVT.LTD., WE HOLD THAT ECLERX SERVICES LTD IS FUNCTIONALLY DISSIMILAR TO THAT OF THE ASSESSEE IN SOFAR AS THE ITES SEGMENT IS CONCERNED AND THEREFORE, THE SA ID CO. CANNOT BE COMPARED WITH THE ASSESSEE CO. FOR THE PURPOSE OF D ETERMINING ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS OF PROVIDING ITES TO ITS ASSOCIATED ENTERPRISE. ACCORDINGLY, WE DIRECT THE AO/TPO TO E XCLUDE ECLERX SERVICES LTD.,(SUPRA) FROM THE SET OF COMPARABLES SELECTED B Y THE TPO. MOLD TEX TECHNOLOGIES LTD., 12. THE LEARNED AR OF THE ASSESSEE HAS REFERRED T O THE DIRECTORS REPORT OF M/S MOLD TEX TECHNOLOGIES LTD., AND SUBMI TTED THAT THIS CO. WAS NOT HAVING AN EXTRA ORDINARY EVENT OF DEMERGER OF I TS SUBSIDIARY M/S MOLD TEK TECH.LTD., AND AMALGAMATED WITH TEKMEN TOOL (P) LTD., THE SCHEME OF AMALGAMATION WAS APPROVED BY THE HONBLE ANDHRA PRA DESH HIGH COURT VIDE ORDER DATED 15/07/2008 THEREFORE, THERE WAS AM ALGAMATION AND DEMERGER IN RESPECT OF THIS CO. DURING THE YEAR UND ER CONSIDERATION. HE HAS REFERRED TO THE BUSINESS ACTIVITY OF THE SAID C O. AS INVOLVED IN THE STRUCTURAL ENGINEERING KPO. THUS, THE LEARNED AR HAS SUBMITTED THAT THIS CO. IS ENTIRELY IN THE DIFFERENT NATURE OF ACT IVITY AND FUNCTIONS WHICH IS NOT COMPARABLE WITH THE ASSESSEE. IN SUPPORT OF H IS CONTENTION HE HAS RELIED UPON THE DECISIONS OF THE SPECIAL BENCH OF M UMBAI (SUPRA) THE LEARNED AR HAS POINTED OUT THAT THIS CO. IS DECLARI NG ONLY ONE SEGMENT OPERATING REVENUE THEREFORE, THIS CANNOT BE COMPARE D WITH THE ASSESSEE. IT(TP)A NO .1685(B)/12 16 13. ON THE OTHER HAND, LEARNED DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS CO. IS IN THE FIELD OF ITES AND THEREFORE, FUNCTIONALLY COMPARABLE WITH THE ASSESSE E. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS THE MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT FUNCTIONAL ANALYSIS OF THE CO. HAS BEEN EXAMINED BY THE SPECIAL BENCH IN CASE OF M/S M AERSK GLOBAL INDIA PVT.LTD(SUPRA) IN PARA-81 & 83 AS UNDER; 81. INSOFAR AS THE CASE OF M/S MOLD TEK TECHNOLOGI ES LTD IS CONCERNED, IT IS OBSERVED FROM THE ANNUAL RE PORT OF THE SAID COMPANY FOR THE FY: 2007-08 PLACED AT PP.139 TO 151 OF THE PAPER BOOK THAT HE SAID COMPAN Y WAS PIONEER IN STRUCTURAL ENGINEERING KPO SERVICES AND ITS ENTIRE BUSINESS COMPRISED OF PROVIDING ONLY STRUCTURAL ENGINEERING SERVICES TO VARIOUS CLIENTS. FURTHER, INFORMATION OF M/S MOLD TEK TECHNOLOGIES L TD AVAILABLE ON THEIR WEBSITE IS FURNISHED IN THE FORM OF PRINTOUT AT PP.158 TO 165 OF THE PAPER BOOK AND A PERUSAL OF THE SAME SHOWN THAT IT IS A LEADING PROV IDER OF ENGINEERING AND DESIGN SERVICES WITH SPECIALIZAT ION IN CIVIL, STRUCTURAL AND MECHANICAL ENGINEERING SER VICES. IT IS STATED TO HAVE A STRONG TEAM OF SKILLED RESOU RCES WITH WORLD CLASS RESOURCES AND SKILL SETS. IT IS A LSO STATED TO HAVE CONSISTENTLY HELPED THE CLIENTS TO C UT DOWN DESIGN AND DEVELOPMENT COST OF CIVIL, STRUCTUR AL, MECHANICAL AND PLANT DESIGN BY 30-40 PERCENT AND DELIVERED TECHNOLOGICALLY SUPERIOR OUTPUTS TO MATCH AND EXCEED EXPECTATIONS. IT IS CLAIMED TO HAVE IN-HOUS E IT(TP)A NO .1685(B)/12 17 SOFTWARE DEVELOPMENT TEAM, QUALITY CONTROL TRAINING AND TROUBLE SHOOTING FACILITIES. M/S MOLD TEK IS A LSO RENDERING WEB DESIGN AND DEVELOPMENT SERVICES WITH EXPERIENCE IN TURNING THEM INTO AN EFFECTIVE GRAPHI C DESIGN REPRESENTATION AND CREATING DYNAMIC AND GRAPHIC RICH WEB APPLICATIONS FROM IT SPECS, DESIGN PRINTS ETC. KEEPING IN VIEW THIS INFORMATION AVAI LABLE IN THE ANNUAL REPORT OF M/S MOLD TEK AS WELL AS ON ITS WEBSITE, WE ARE OF THE VIEW THAT THE SAID COMPANY I S MAINLY INVOLVED IN PROVIDING HIGH END SERVICES TO I TS CLIENTS INVOLVING HIGHER SPECIAL KNOWLEDGE AND DOMA IN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE TAKEN AS COMPARABLE TO THE ASSESSEE COMPANY WHICH IS MAINLY INVOLVED IN PROVIDING LOW END SERVICES. IT MAY BE PERTINENT TO NOTE HERE THAT THE FINANCIAL YEAR 2007 -08 WAS A UNIQUE EAR FOR MOLD TEK TECH.LTD. AS THE SCHE ME OF ARRANGEMENT INVOLVING AMALGAMATION BETWEEN TEKMEN TOOL (P)LTD AND MOLD TEK TECH.LTD. AND DEMERGER BETWEEN MOLD TEK TECHNOLOGIES LTD., SIMULTANEOUSLY, WAS SANCTIONED BY THE HONBLE ANDHR A PRADESH HIGH COURT BY 15 TH JULY, 2008 WITH THE APPOINTED DATE FOR AMALGAMATION AND DEMERGER BEING AS OCTOBER, 2007 AND APRIL 2007 RESPECTIVELY. IT IS ALSO PERTINENT TO NOTE THAT WHILE WORKING OUT THE OPERATING MARGIN OF THE SAID COMPANY PROVISION FOR DERIVATIVE LOSS OF RS.6.43 CRORES MADE BY MOLD TEK TECH.LTD. WAS EXCLUDED BY THE AO TREATING THE SAME AS NON-OPERATING EXPENSES WHEREAS IN THE CASE OF RUSAB H DIAMONDS VS ASST.CIT(REPORTED AT (2013) 155 TTJ (MUM.) 386 (2013) 89 DTR (MUM.)(TRIB.) 57 ED) IT W AS IT(TP)A NO .1685(B)/12 18 HELD BY THE DIVISION BENCH OF THIS TRIBUNAL THAT TH E GAIN OR LOSS ARISING FROM THE FORWARD CONTRACT ENTE RED FOR THE PURPOSE OF FOREIGN CURRENCY EXPOSURE ON THE EXPORT AND IMPORT HAS TO BE TAKEN INTO CONSIDERATIO N WHILE COMPUTING THE OPERATING PROFIT. 83. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW THAT IF THE FUNCTIONS ACTUALLY PERFORMED BY TH E ASSESSEE COMPANY FOR ITS AE ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES(P)LTD AND MOLD- TEK TECHNOLOGIES LTD. IT IS DIFFICULT TO FIND OUT A NY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SA ID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PUR POSE OF DETERMINING ALP OF THE TRANSACTIONS OF THE ASSES SEE COMPANY WITH ITS AES. WE, THEREFORE, DIRECT THAT T HESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 COMPAR ABLES FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTIONS O F THE DRP. 15. THE SPECIAL BENCH HAS EXAMINED THE FUNCTIONAL COMPARABILITY OF THIS CO. WITH THAT OF ITES LOW END SERVICE PROVI DING ASSESSEE AND FOUND THAT THIS CO. IS RENDERING WEB DESIGNING AND DEVELO PMENT OF SERVICES WITH EXPERTISE IN TURNING THEM IN TO EFFECTIVE GRAPHICS, DESIGN REPRESENTATIVE AND CREATING DYNAMICS AND GRAPHIC RICH WEB APPLICAT ION FROM IT SPECES, DESIGN, PRINTS ETC. FURTHER, THIS CO. WAS ALREADY FOUND TO BE INVOLVED IN PROVIDING STRUCTURAL ENGINEERING SERVICES COUPLED W ITH EXTRAORDINARY EVENT OF AMALGAMATION AND DEMERGER. FOLLOWING THE DECISION OF THIS SPECIAL BENCH IN CASE OF M/S MAERSK GLOBAL INDIA PV T. LTD. IT(TP)A NO .1685(B)/12 19 (SUPRA),MUMBAI BENCHES THE TRIBUNAL IN THE CASE OF M/S LIONBRIDGE TECH. PVT. LTD(SUPRA) ALSO TOOK A SIMILAR VIEW IN P ARA-7 AS UNDER; 7. BY APPLYING THE ARITHMETIC MEAN OF 30.10% AN ADJUSTMENT OF RS.10,39,54,664/- WAS SUSTAINED BY DR P. OUT OF THE COMPARABLES TAKEN BY THE DRP, LEARNED AR HAS CONTENDED AGAINST THREE COMPANIES NAMELY; MOLD TEK TECH.LTD. EXCLERX SERVICE :LTD AND ACROPETAL TE CH.LTD WHICH WERE ALLEGED TO BE FUNCTIONALLY DIFFERENT FRO M THE ASSESSEE COMPANY BEING A LOW END BACK OFFICE SUPPO RT SERVICE PROVIDER. WE FOUND THAT MOLD TEK TECH.LTD PROVIDES KPO SERVICES IN THE FIELD OF ENGINEERING. WE ALSO FOUND THAT MOLD TEK HASS DEMERGED ITS SUBSIDIA RY MOLD TEK PLASTICS LTD W.E.F. APRIL, 2007 WHICH IS A N EXTRA- ORDINARY EVENT. FURTHERMORE, SINCE THE MOLD TEK I S INTO PROVIDING KPO ENGINEERING SERVICES, HENCE, CANNOT B E FUNCTIONALLY COMPARED WITH THE ASSESSEE COMPANY WHI CH IS ENGAGED IN THE PROVISION OF BACK OFFICE OPERATIO NS. FOR THIS PURPOSE, RELIANCE MAY BE PLACED ON THE DEC ISION OF SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL CENTR ES (IND.) PVT.LTD, ITA NO.7466/MUM/2012. ACCORDINGLY , WE DO NOT FIND ANY JUSTIFICATION IN THE ORDER OF DRP F OR NOT EXCLUDING MOLD TEK AS COMPARABLE WHICH IS A KNOWLED GE PROCESSING COMPANY. THUS, THE DRP WAS NOT JUSTIFI ED IN THE COMPARING THE SAME WITH THE ASSESSEE WHICH IS FUNCTIONALLY DIFFERENT INSOFAR AS ASSESSEE IS ENGAG ED IN PROVIDING LOW END BACK OFFICE SUPPORT SERVICES. 16. IN VIEW OF THE ABOVE FACTS AND NATURE OF THE F UNCTIONS PERFORMED BY THE MOLD TEK WHICH HAVE BEEN EXAMINED BY THE SPE CIAL BENCH AND IT(TP)A NO .1685(B)/12 20 FOUND IS NOT COMPARED WITH THE LOW END ITES SERVICE PROVIDER CO. WE HOLD THAT THIS CO. IS FUNCTIONALLY NOT COMPARABLE WITH T HAT OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE MOLD T EK FROM THE LIST OF COMPARABLES. 17. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED T HAT THE ASSESSEE WOULD NOT SEEK FURTHER EXCLUSION OF OTHER COMPARABL ES IF THE TPO/AO IS DIRECTED TO EXCLUDE THESE TWO COMPANIES FROM THE CO MPARABLES THAN THE MEAN MARGIN WOULD BE WITHIN THE TOLERANCE RANGE OF +=5% AND CONSEQUENTLY NO ADJUSTMENT CAN BE MADE ON THIS ACCO UNT. IN VIEW OF THE STATEMENT AND PLEA OF THE LEARNED AR WE DIRECT THE AO/TPO TO RE-COMPUTE THE ALP AFTER EXCLUDING THE ABOVE TWO CO. NAMELY M/ S ECLERX AND M/S MOLD TEK (SUPRA) AND THEN DETERMINE THE ADJUSTMENT, IF ANY AFTER GIVING THE BENEFIT OF TOLERANCE RANGE OF +=5%. 18. GROUND NO.15 & 16 IS REGARDING EXCLUSION OF CO MMUNICATION EXPENSES/LEASE LINE CHARGES FROM EXPORT TURNOVER FO R THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. 19. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEA RNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ON LY GRIEVANCE OF THE ASSESSEE ON THIS ISSUE IS THAT IF THE COMMUNICATION EXPENSES ARE EXCLUDED FROM THE EXPORT TURNOVER THEN, THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER IN VIEW OF THE JUDGMENT OF JURISDICT IONAL HIGH COURT IN THE IT(TP)A NO .1685(B)/12 21 CASE OF M/S TATA ELXSI LTD. REPORTED IN 349 ITR 98 FOR THE ASSESSMENT YEAR 2003-04. AT THE OUTSET, WE NOTE THAT THIS ISSUE IS NOW COVERED IN THE CASE OF M/S TATA ELXSI LTD. CITED SUPRA, WHEREIN THE HON BLE HIGH COURT WHILE DEALING WITH THE ISSUE HAS HELD IN PARA-17 & 18 AS UNDER; 17. FROM THE AFORESAID JUDGMENTS, WHAT EMERGES IS THAT, THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BO TH THE NUMERATOR AND THE DENOMINATION OF THE FORMULA, SINC E OTHERWISE, IT WOULD PRODUCE ANOMALIES OR ABSURD RES ULTS. SECTION 10A IS A BENEFICIAL SECTION. IT IS INTENDE D TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBIN ED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMUL A TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPOR TIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNO VERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER W AS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE D ERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TO TAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS O F AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOM ESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNOVER AND DOMES TIC TURNOVER. THE EXPORT TURNOVER WOULD BE A COMPONEN T OR PART OF A DENOMINATOR, THE OTHER COMPONENT BEING THE DOM ESTIC TURNOVER. IN OTHER WORDS, TO THE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMM ONALITY, IT(TP)A NO .1685(B)/12 22 THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN OTH ER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE AR RIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMP ONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BEIN G THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENO0MINAT OR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECTION 10A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT WHAT IS EXCLUDED F ROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELES S FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED Y THE LEGISLATURE AND AN ORDINARY MEANI NG IS TO BE ATTRIBUTED TO THE SAME, THE SAID ORDINARY MEANIN G TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESCRIBES A FORMULA AND IN THE SAID FORMULA, EXPORT TURNOVER IS DEFIN ED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LE GISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER I S INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPO RT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRET ATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISS IBLE. IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD H AVE EXPRESSLY STATED SO. IF THEY HAVE NOT CHOSEN TO EX PRESSLY DEFINE WHAT THE TOTAL TURNOVER MEANS, THEN, WHEN TH E TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE MEANING ASSI GNED BY THE LEGISLATURE TO THE EXPORT TURNOVER IS TO BE RES PECTED AND IT(TP)A NO .1685(B)/12 23 GIVEN EFFECT TO, WHILE INTERPRETING THE TOTAL TURNO VER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE, THE FO RMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10A, WOU LD BE AS UNDER; IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. THEREFORE, WE DO NOT SEE ANY MERIT IN T HESE APPEALS. THE SUBSTANTIAL QUESTION OF LAW FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. FOLLOWING THE JUDGMENT OF THE HONBLE HIGH COURT TH IS ISSUE IS DECIDED IN FAVOUR OF THE ASSESEE. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE 17-07-2015 SD/- SD/ - (JASON P BOAZ) (VIJA Y PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER D A T E D : PLACE: BANGALORE AM* COPY TO : 1 APPELLANT 2 RESPONDENT T3 CIT(A) BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR, ITAT, BANGALORE