Acusis Software India Private Limited, Bangalore V. ITO, Bangalore

ITA 169/BANG/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1301 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 12-02-2016
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES C BENCH: BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT (TP)A NO. 169/BANG/2016 (ASSESSMENT YEAR: 201 1 - 12 ) M/S. ACUSIS SOFTWARE INDIA PRIVATE LIMITED, NO.17/2, DOLLARS CHAMBER, LALBAGH ROAD, BANGALORE - 560 027 PAN: AADCA 2415P VS. INCOME TAX OFFICER , WARD 1(1)(1), BANGALORE. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI CHAVALI NARAYAN, C.A. REVENUE BY: DR. P. V. PRADEEP KUMAR, CIT(D.R) DATE OF HEARING : 09.07 .2019 DATE OF PRONOUNCEMENT : 06 .0 9 .2019 O R D E R PER SHRI PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF INCOME TAX ACT, 1961 IN PURSUAN CE TO THE D IRECTIONS OF DISPUTE RESOLUTION PANEL (DRP) ORDER DT.13.11.2015. 2. THE LEARNED AUTHORISED REPRESENTATI VE AT THE TIME OF HEARING FILED REVISED AND MODIFIED GROUNDS OF APPEAL AND SUBMITTED THAT GROUND NOS.1 & 2 ARE GENERAL 2 IT(TP)A NO.169/BANG/2016 IN NATURE AND IS NOT PRESS ING GROUND NOS.3, 7, 8 & 9 AND MADE ENDORSEMENT. WHEREAS THE GROUND NO.12 IS CONSEQUENTIAL AND THE EFFECTIVE GROUNDS OF APPEAL ARE GROUND NOS.4, 5, 6, 10 & 11 WHICH ARE MENTIONED HEREUNDER : - 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MEDICAL TRANSCRIPTION AND IS A SUBSIDIARY OF ACUSIS HOLDING CO. LTD. BRITISH V IR GIN ISLANDS WHICH IS A WHOLLY SUBSIDIARY OF ACUSIS LLC , USA AND THE COMPANY REGISTERED AS A PRIVATE COMPANY ENGAGED IN MEDICAL TRANSCRIPTION SERVICES TO ACUSIS LLC AND IS REMUNERATED ON COST + 15% MARK UP. THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011 - 12 WITH INCOME AT NIL AFTER CLAIMING 3 IT(TP)A NO.169/BANG/2016 DEDUCTION UNDER SECTION 10A OF THE ACT OF RS.88,25,084. SUBSEQUEN TLY, THE CASE W A S SELECTED FOR SCRUTINY AND A NOTICE UNDER SECTION 143(2) AND 142(1) WERE ISSUED. THE ASSESSING OFFICER ON PERUSAL OF THE FINANCIAL STATEMENTS F OUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10A WHEREAS THE ASSESSING OFFICER FOUND THAT THE CLAIM IS EXCESSIVE AND RESTRICTED THE CLAIM OF RS.3,81,78,684. SINCE THE ASSESSEE COMPANY HAS INTERNATIONAL TRANSACTIONS , THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) WITH PRIOR APPROVAL OF THE COMMISSIONER OF INCOME TAX A ND THE TPO DEALT ON THE FINANCIAL PROFILE OF THE ASSESSEE WITH OPERATING PROFIT ON OPERATING COST AT PARA 3 AS UNDER : OPERATING REVENUES 25,93,15,082/ - OPERATING EXPENSES 22,23,59,708/ - OPERATING (PROFIT) / LOSS 3,69,55,374/ - OP. PROFIT ON COST % 16.61% THE ASSESSEE HA S INTERNATIONAL TRANSACTIONS OF PROVIDING MEDICAL TRANSCRIPTION OF RS.25,93,15,082. THE ASSESSEE HAS SUBMITTED THE DOCUMENTS REQUIRED UNDER RULE 92D ALONG WITH ACTUAL REPORTS AND COPIES WHEREAS THE ASSESSEE HAS SELECTED 14 COMPARA BLES IN RESPECT OF IT ENABLED SERVICES AND TNMM IS CONSIDERED AS MOST APPROPRIATE METHOD (MAM) WHEREAS THE TPO HAS REJECTED THE TP STUDY AND APPLIED FILTER AND FINALLY SELECTED COMPARABLES AND REJECTED ASSESSEE'S COMPARABLES AT PAGE 7 PARA 6 AS UNDER : 4 IT(TP)A NO.169/BANG/2016 THE TPO DISCUSSED THE ANALYSIS OF COMPARABLES SELECTED IN PAGES 8 TO 14 AND FINALLY DEALT ON THE ECONOMICS AND COMPUTED ARMS LENGTH PRICE (ALP) AT 5 IT(TP)A NO.169/BANG/2016 RS.2,73,57,054. FURTHER, T HE D RAFT ASSESSMENT ORDER WAS PASSED ON 16.2.2015 UNDER SECTION 143(3) R.W. S. 92CA OF THE ACT DETERMINED THE TOTAL INCOME AFTER ALP AT RS.2,79,97,454 AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS WITH THE DRP, WHEREAS THE DRP AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HAS GRANTED RELIEF IN RESPECT OF COMPARABLES AND FINAL ASSESSMENT ORDER WAS PASSED . AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. 4. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE CHART IN RESPECT OF EXCLUSION OF THE CO MPARABLES I.E. ACCENTIA TECHNOLOGIES LTD. AND ICRA ONLINE LTD., SINCE THE DRP HAS CONFIRMED THE ACTION OF THE TPO. THE LD. AR SUBMITTED THAT 6 COMPARABLES ARE TO BE IN CLUDED AND RELIED ON THE JUDICIAL DECISIONS OF EMC SOFTWARE AND SITEL INDIA PVT. LTD. AN D FIN A STRA SOFTWARE SOLUTIONS FOR THE SAME ASSESSMENT YEAR 2011 - 12 . SIMILARLY, THE LEARNE D AUTHORISED REPRESENTATIVE PRAYED FOR INCLUSION OF COMPARABLES OF E4E HEALTHCARE BUSINESS SERVICES PVT. LTD., COSMIC GLOBAL LIMITED, INFORMED TECHNOLOGIES INDIA LIMITED, MICROGENETIC SYSTEMS LTD., CALIBRE POINT BUSINESS SOLUTIONS LIMITED AND R. SYSTEMS INTERNATIONAL LIMITED. THE CONTENTION OF LD. AR ON THE ISSUE OF INCLUSION OF COMPARABLES COVERED IN ASSESSEE'S OWN CASE WHERE 6 COMPARABLES ARE INCLUDED FOR THE ASSESSMENT YEARS 2009 - 10 , 2010 - 11 AND 2012 - 13 AND SUPPORTED WITH THE DECISION OF HON'BLE DELHI HIGH 6 IT(TP)A NO.169/BANG/2016 COURT. ON THE OTHER ISSUES WITH RESPECT TO WORKING CAPITAL ADJUSTMENT AND FOREIGN EXCHAN GE FLUCTUATION, THE ASSESSEE COULD NOT ABLE TO SUBMIT THE DETAILS AND PRAYED FOR RES TORING TO THE FILE OF TPO AND LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 5. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. ON THE FIRST DISPUTED ISSUE ON THE EXCLUSION OF TWO COMPARABLES, THE LEARNED AUT HORISED REPRESENTATIVE FILED CHART . WE FIND (I) ACCENTIA TECHNOLOGIES LTD. T U R N O V E R I S RS.106.90 CRORES AND THE FUNCTIONING OF THE COMPANY IS ENGAGED IN PACKAGING ITS SERVICES INTO SOFTWARE PRODUCTIONS THAT ARE DEVELOPED IN - HOUSE WITH NO BIFURCATION S . THE COMPANY ALSO INVESTED IN THE DEVELOPMENT OF EMR SOFTWARE AND SAAS MODEL, AND MARKETED INUSA RETAINING OF THE WORKF ORCE ACRO SS ALL ITS DELIVERY CE N T RES. THE COMPANY IN THE PREVIOUS YEAR EXPANSION BY ACQUIRING STAKE IN STRATEGIC TANGENT CORPORATION AND ALPINE TECHNOLOGIES INC HAVING EXPERTISE IN SOFTWARE DEVELOPMENT AND REMODEL BUSINESS PLAN WITH THE ADOPTION OF EMR BASED CLINI CAL PRACTICE AND HAS OPENED UP AVENUES FOR AN INTEGRATED END - TO - END SAAS MODEL AND ALSO INVOLVED IN PRODUCT DEVELOPMENT OF A WIDE RANGE LIKE INSTA KARE, INSTA PMS, INSTA EMR, ETC FURTHER SOFTWARE WITH HOST OF OTHER BPO SERVICES PROVIDES A COMPETITIVE EDGE SOLELY ON MEDICAL TRANSCRIPTION SERVICES AND SEGMENT INFORMATION OF THE COMPANY IS REPORTED ONLY ON ONE SEGMENT NAMELY HEALTHCARE 7 IT(TP)A NO.169/BANG/2016 RECEIVABLE MANAGEMENT, BUT WHEREAS THE COMPANY IS ALSO WORKING ON OTHER SEGMENTS SUCH AS SAAS, PRODUCT DEVELOPMENT ETC AND T HERE IS NO PROPER DISCLOSURE. FURTHER THE COMPANY CONSIDERS ITS SERVICES ARE IN THE NATURE OF KPO RATHER THAN BPO SERVICES AND INTANGIBLES IN THE NATURE OF GOODWILLS, BRANDS AND IPRS WHICH CONSTITUTE 46.68% OF THE TOTAL VALUE OF FIXED ASSETS EXC LUDING CAP ITAL WORK IN PROGRESS AND T HE COMPANY RECOGNIZES THE REVENUE ON COMPLETION OF SERVICES, THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND RELIED ON CO - ORDINATE BENCH DECISION IN IT(TP)A NO.273/BANG/2016 FOR ASST. YEAR 2011 - 12 DT.25.4.2018 IN THE CAS E OF EMS SOFTWARE SERVICES (INDIA) PVT. LTD. AT PAGE13 AT PARAS 29 TO 31 AS UNDER : 29. AS FAR AS THE CROSS - OBJECTION OF THE ASSESSEE IS CONCERNED, IN GROUND 1.6 THE ASSESSEE HAS SOUGHT EXCLUSION OF ACCENTIA TECHNOLOGY LTD., FROM THE FINAL LIST OF COMPARABLES, AFTER THE ORDER OF THE DRP. THE GROUND ON WHICH THE ASSESSEE SEEKS EXCLUSION OF THIS COMPANY IS THAT THIS COMPANY IS ENGAGED IN PROVIDING HIGH END SERVICES IN THE NATURE OF KNOWLEDGE PROCESSING OUT SOURCING. ACCORDING TO THE ASSESSEE IT WAS ENGAGED IN BACK OFFICE SERVICES WHICH ARE ONLY SUPPORTIVE AND CANNOT BE COMPARED WITH SERVICES PERFORMED BY ACCENTIA TECHNOLOGY LTD. BESIDES THE ABOVE, THIS COMPANY IS ALSO STATED TO HAVE INCOME FROM CODING WHICH IS SUBSTANTIAL. THE LD COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF M/S SWISS RE S HARED SERVICES INDIA PVT. LTD., VS. ACIT IN IT(TP)A NO.380/BANG/2016 ORDER DATED 8/7/2016 FOR ASSESSMENT YEAR 2011 - 12. OUR ATTENTION WAS DRAWN TO THE ORDER OF THE PARAS 9 TO 20 OF THE ORDER OF THE TRIBUNAL, WHEREIN THE TRIBUNAL HAS CONSIDERED COMPARABILITY OF THIS COMPANY IN THE ITES SEGMENT AND HAS HELD AS FOLLOWS: - 09. ADVERTING TO ACCENTIA TECHNOLOGIES LTD, LD. AR SUBMITTED THAT THE SAID COMPANY HAD INORGANIC GROWTH DURING THE RELEVANT PREVIOUS YEAR DUE TO CREATION OF A US BASED LOCALISED FRONT - END COM PANY. AS PER THE LD. AR, ACCENTIA TECHNOLOGIES LTD, WAS DOING OUTSOURCING WORK AS WELL AS CODING. CODING WORK FELL WITHIN THE REALM OF SOFTWARE DEVELOPMENT ONLY. ACCORDING TO THE LD. AR, MEDICAL TRANSCRIPTION EARNINGS OF ACCENTIA TECHNOLOGIES LTD, COMPRISE D OF PREPARATION OF CUSTOMISED NOTES OF PATIENTS, RECORD KEEPING OF PATIENTS, INSURANCE VERIFICATION OF PATIENTS, APPOINTMENT SCHEDULING OF PATIENTS, PROVIDING ACCESSIBLE PRACTICE MANAGEMENT SYSTEM, PROVIDING EMR SYSTEMS INCLUDING EMR CODING, BILLING, BI LL PAYMENT MANAGEMENT SYSTEM, ADHOC REPORTING ETC., AS PER THE LD.AR, SAID COMPANY CATERED TO THE HEALTH CARE INDUSTRY AND THEIR PRODUCTS WERE CUSTOMISED AND NOT SIMILAR TO WHAT ASSESSEE WAS DOING. AS PER THE LD. AR THE WORK DONE BY ACCENTIA TECHNOLOGIES L TD, REQUIRED SKILLED KNOWLEDGE AND ADVANCED ANALYTICS. LD. AR SUBMITTED THAT DURING THE RELEVANT PREVIOUS YEAR, THE SAID COMPANY HAD INVESTED IN 8 IT(TP)A NO.169/BANG/2016 ANOTHER COMPANY WHICH HAD AN EXPERTISE IN EMR SOFTWARE AND SAAS. IN ANY CASE, AS PER THE LD. AR, SEGMENTAL RESU LTS OF ACCENTIA WAS NOT AVAILABLE IN BETWEEN VARIOUS SEGMENTS LIKE MT BILLING COLLECTION AND CODING. WHEN SEGMENTAL RESULTS WERE NOT AVAILABLE, AS PER THE LD. AR IT WAS NOT PROPER TO CONSIDER ACCENTIA TECHNOLOGIES LTD, AS A GOOD COMPARABLE. RELIANCE WAS AL SO PLACED ON DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF EQUANT SOLUTIONS INDIA P. LTD V. DCIT [ITA.1202/DEL/2015, DT.21.01.2016] AND THAT OF COORDINATE BENCH IN THE CASE OF AMBA RESEARCH (INDIA) P. LTD, V. DCIT [IT(TP)A.286/BANG/2015, DT.09.03. 2016]. AS PER THE LD. AR THOUGH THE ABOVE DECISIONS WERE FOR A. Y. 2010 - 11, ACCENTIA TECHNOLOGIES LTD, WAS DOING THE VERY SAME ACTIVITIES DURING THE RELEVANT PREVIOUS YEAR ALSO. HENCE ACCORDING TO HIM THESE DECISIONS COULD BE TAKEN AS A PRECEDENCE FOR EXCL UDING THE SAID COMPANY FROM THE LIST OF COMPARABLES. 10. PER CONTRA, LD. DR SUBMITTED THAT 80% OF THE REVENUE OF ACCENTIA TECHNOLOGIES LTD, WERE FROM MEDICAL TRANSCRIPTION, WHICH FELL WITHIN ITES ONLY. AS PER THE LD. DR, ACTUAL ACTIVITIES OF THE ASSESSEE COMPARED FAVOURABLE WITH ACCENTIA TECHNOLOGIES LTD. WHEN 80% OF THE INCOME WAS FROM ITES SERVICES, AS PER THE LD. DR FURTHER SEGMENTATION WAS NOT REQUIRED. AS FOR THE RELIANCE PLACED ON THE DECISIONS OF DELHI BENCH IN THE CASE OF EQUANT SOLUTIONS INDIA P. LTD, (SUPRA) AND COORDINATE BENCH IN THE CASE OF AMBA RESEARCH INDIA P. LTD (SUPRA), LD. DR SUBMITTED THAT THESE WERE FOR A. Y. 2010 - 11 AND THERE WAS A CLEAR FINDING BY THE TRIBUNAL THAT RESULTS OF ACCENTIA TECHNOLOGIES LTD, WERE SKEWED BECAUSE OF ACQUISI TION OF A BUSINESS DURING THAT YEAR AND ALSO DUE TO INORGANIC GROWTH. 11. IN REPLY LD. AR SUBMITTED THAT EVEN WITHIN THE SAME ITES SEGMENT DIFFERENTIATION COULD BE MADE BASED ON HIGH - END AND LOWEND SERVICES. RELYING ON JUDGMENT OF HONBLE DELHI HIGH COUR T IN THE CASE OF RAMPGREEN SOLUTIONS P. LTD V. CIT [ITA.102/2015, DT.10.08.2015], LD. AR SUBMITTED THAT THERE COULD BE HIGH - END AND LOW - END SERVICES WHICH MAY NOT BE COMPARABLE. AS PER LD. AR IN THE CASE OF ASSESSEE, IT WAS DOING LOW - END BPO SERVICES IN TH E FIELD OF INSURANCE AND COULD NOT BE COMPARED WITH A HIGH - END SERVICE PROVIDER IN THE MEDICAL FIELD. 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. TWENTIETH ANNUAL REPORT OF ACENTIA TECHNOLOGIES LTD, FOR FINANCIAL YEAR 2010 - 11 HAS BEEN FILED AT PAPER BOOK PAGE 491 TO 568. IN THE PART CAPTIONED MANAGEMENT DISCUSSION AND ANALYSIS, THE COMPANY MENTIONED ITS MEDICAL TRANSCRIPTION BUSINESS BEING MOVED FROM A LOW - END CATEGORY TO A HIGH - END CATEGORY. MANAGEMENT OF THE SAID COMPANY HAD DECIDE D TO ACQUIRE NECESSARY SKILLS INORGANICALLY SO THAT IT COULD DO MEDICAL CODING AND PROVIDE END TO END SERVICES IN HRCM. IN WHAT IS CALLED BY THE SAID COMPANY AS EMR METHOD, IT CAPTURED AND STORED ALL DEMOGRAPHIC AND CLINICAL DATA IN DATA BASE FORMAT RATHER THAN KEEPING PHYSICAL REPORTS AS DONE IN ORTHODOX MEDICAL TRANSCRIPTION METHODS. THAT M/S. ACCENTIA TECHNOLOGIES LTD, WAS PROVIDING INTEGRATED END TO END SOFTWARE SERVICES AND REMODELLING ITS OWN BUSINESS IS CLEAR FROM PAGE 25 OF ITS ANNUAL REPORT WHICH I S REPRODUCED HEREUNDER : 13. TYPE OF WORK DONE BY THE SAID COMPANY HAS BEEN EXPLAINED IN DETAIL AT PAGES 24 AND 25 OF ANNUAL REPORT. THIS IS REPRODUCED HEREUNDER : 9 IT(TP)A NO.169/BANG/2016 17. THUS THE FUNCTIONS WHICH WERE DONE BY ACCENTIA TECHNOLOGIES LTD, AND THE FUNCTIO NS WHICH WERE RENDERED BY THE ASSESSEE WERE ENTIRELY DIFFERENT. WE CANNOT SAY THAT THE TYPE OF SERVICES DONE BY THE ASSESSEE WAS OF A LEVEL AS SOPHISTICATED AS THE ONE WHICH WAS BEING PROVIDED BY ACCENTIA TECHNOLOGIES LTD. IN THE CASE OF RAMPGREEN SOLUTIO NS P. LTD (SUPRA), HONBLE DELHI HIGH COURT MENTIONED AS UNDER AT PARA 31 OF ITS ORDER, WHICH READS AS UNDER : 31. IN THE PRESENT CASE, THE TRIBUNAL NOTED THAT VISHAL AND ECLERX WERE BOTH ENGAGED IN RENDERING ITES. THE TRIBUNAL HELD THAT, 'ONCE A SERVICE FALLS UNDER THE CATEGORY OF ITES, THEN THERE IS NO SUB - CLASSIFICATION OF SEGMENT'. THUS, ACCORDING TO THE TRIBUN AL, NO DIFFERENTIATION COULD BE MADE BETWEEN THE ENTITIES RENDERING ITES. WE FIND IT DIFFICULT TO ACCEPT THIS VIEW AS IT IS CONTRARY TO THE FTC1AMENTAT RATIONALE OF DETERMINING ALP BY COMPARING CONTROLLED TRANSACTIONS/ENTITIES WITH SIMILAR UNCONTROLLED TRA NSACTIONS/ENTITIES. ITES ENCOMPASSES A WIDE SPECTRUM OF SERVICES THAT USE INFORMATION TECHNOLOGY BASED DELIVERY. SUCH SERVICES COULD INCLUDE RENDERING HIGHLY TECHNICAL SERVICES BY QUALIFIED TECHNICAL PERSONNEL. INVOLVING ADVANCED SKILLS AND KNOWLEDGE, SUCH AS ENGINEERING, DESIGN AND SUPPORT. WHILE, ON THE OTHER END OF THE SPECTRUM ITES WOULD ALSO INCLUDE VOICE - BASED CALL CENTERS THAT RENDER ROUTINE CUSTOMER SUPPORT FOR THEIR CLIENTS. CLEARLY, CHARACTERISTICS OF THE SERVICE RENDERED WOULD BE DISSIMILAR. FURT HER, BOTH SERVICE PROVIDERS CANNOT BE CONSIDERED TO BE FUNCTIONALLY SIMILAR. THEIR BUSINESS ENVIRONMENT WOULD BE ENTIRELY DIFFERENT, THE DEMAND AND SUPPLY FOR THE SERVICES WOULD BE DIFFERENT, THE ASSETS AND CAPITAL EMPLOYED WOULD DIFFER, THE COMPETENCE REQ UIRED TO OPERATE THE TWO SERVICES WOULD BE DIFFERENT. EACH OF THE AFORESAID FACTORS WOULD HAVE A MATERIAL BEARING ON THE PROFITABILITY OF THE TWO ENTITIES. TREATING THE SAID ENTITIES TO BE COMPARABLES ONLY FOR THE REASON THAT THEY USE INFORMATION TECHNOLO GY FOR THE DELIVERY OF THEIR SERVICES, WOULD, IN OUR OPINION, BE ERRONEOUS. 18. THUS WHEN CHARACTERISTICS OF SERVICES RENDERED WERE DISSIMILAR AND THE COMPETENCE REQUIRED TO OPERATE THE SERVICES WERE DIFFERENT, IT WILL NOT BE CORRECT TO COMPARE THE RESUL TS OF TWO COMPANIES. 19. IN THE CASE OF AMBA RESEARCH INDIA P. LTD (SUPRA), THIS TRIBUNAL HAD DIRECTED EXCLUSION OF ACCENTIA TECHNOLOGIES LTD, FOR COMPARISON PURPOSES. ASSESSEE IN THE SAID CASE WAS PROVIDING ITES SERVICES TO ITS HOLDING COMPANY AT BRITIS H VIRGIN ISLANDS. OBSERVATION OF THE TRIBUNAL AT PARA 8 OF THE ORDER DT.09.03.2016, IS REPRODUCED HEREUNDER : 08. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. NO DOUBT ACCENTIA TECHNOLOGIES LTD, FORMED A PART OF THE LIST OF COMPARABLES CON SIDERED BY THE ASSESSEE IN ITS TP STUDY. HOWEVER ASSESSEE HAD OBJECTED TO ITS INCLUSION CITING FUNCTIONAL DISSIMILARITY BEFORE THE AO AS WELL AS THE DRP. QUESTION REGARDING COMPARABILITY OF ACCENTIA TECHNOLOGIES IN THE ITE SEGMENT FOR A. Y. 2010 - 11 HAD COM E UP BEFORE THIS TRIBUNAL IN THE CASE OF NOVO NORDISK INDIA P. LTD (SUPRA). IT WAS HELD AS UNDER AT PARAS 31 AND 32 OF THE ORDER DT.30.07.2015 : 31. WE DEAL WITH THE COMPARABLE COMPANIES WHICH THE ASSESSEE SEEKS EXCLUSION. 1. ACCENTIA TECHNOLOGY LTD., 2. INFOSYS BPO LTD. THE COMPARABILITY OF THESE COMPANY WITH A ITES COMPANY WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE OF PARAXEL INTERNATIONAL (INDIA) PVT. LTD. (SUPRA) AND THE TRIBUNAL HELD AS FOLLOWS ON THE COMPARABILITY OF THE AFORESAID COMPANIES WITH A COMPANY PROVIDING ITES IN THE FOLLOWING MANNER: - 10. IN GROUNDS NO.4 TO 6, THE ASSESSEE HAS CHALLENGED THE COMPARABLES SELECTED BY THE TPO FOR THE PURPOSE OF TP ANALYSIS AND AS SUBMITTED BY THE LEARNED COUNSEL OR THE ASSESSEE, THE ASSESSEE IS 10 IT(TP)A NO.169/BANG/2016 OBJECTING TO THE SELECTION OF ONLY THE FOLLOWING FIVE COMPARABLES, OUT OF THE TWELVE COMPANIES SELECTED AS COMPARABLES SL. NO. COMPANY NAME 1. ACCENTIA TECHNOLOGIES LIMITED TECHNOLOGY 2. COSMIC GLOBAL LTD. 3. ECLERX SERVICES LTD. 4. GENESYS INTERNATIONAL LTD. 5. INFOSYS B P O LTD. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THE ISSUE OF INCLUSION/EXCLUSION OF THE ABOVE FIVE COMPANIES AS COMPARABLES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE VARIOUS DECISIONS OF THE COORDINATE BE NCHES OF THE TRIBUNAL CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. ACCENTIA TECHNOLOGIES LIMITED 12. AS REGARDS THE SELECTION OF ACCENTIA TECHNOLOGIES LIMITED AS COMPARABLE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISIONS OF THIS TRIBUNAL IN THE CASES OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. V/S. ADDL./DY. COMMISSIONER OF I NCOME - TAX, CIRCLE 1(2), HYDERABAD AND VICE VERSA (ITA NO.124 AND 170/HYD/2014 DATED 31.7.2014); EXCELLENCE DATA RESEARCH PVT. LTD., HYDERABAD V/S. ITO WARD 2(1), HYDERABAD (ITA NO.159/HYD/2014 DATED 31.7.2014); AND HYUNDAI MOTORS INDIA ENGINEERING P. LTD., HYDERABAD V/S. DCIT, CIRCLE 2(2), HYDERABAD (ITA NHO.255/HYD/2014 DATED 31.7.2014), WHEREIN M/S. ACCENTIA TECHNOLOGIES LIMITED(SEG) WAS EXCLUDED BY THE TRIBUNAL FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT WAS A CASE OF MERGERS AND ACQUISITION, AND THE COMPANY WAS ALSO FOUND TO BE FUNCTIONALLY DIFFERENT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL AS RECORDED IN PARA 19.2 OF THE ORDER PASSED IN THE CASE OF EXCELLENCE DATA RESEARCH PVT. LTD., HYDERABAD (SUPRA), BEING RELEVANT IN THIS CASE, ARE REPRODUCE D BELOW - 19.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND NOTICED THAT THIS COMPANY OPERATES IN A DIFFERENT BUSINESS STRATEGY OF ACQUIRING COMPANIES FOR INORGANIC GROWTH AS ITS STRATEGY. IN EARLIER YEARS ON THE REASON OF ACQUISITION OF VARIOUS COMPANIE S, BEING AN EXTRAORDINARY EVENT WHICH HAD AN IMPACT ON THE PROFIT, THIS COMPANY WAS EXCLUDED. AS SUBMITTED BY THE LEARNED COUNSEL, THIS YEAR ALSO, THE ACQUISITION OF SOME COMPANIES BY THAT COMPANY MAY HAVE IMPACT ON THE PROFIT. CONSIDERING THE PROFIT MARGI NS OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA, WE ARE OF IT(TP)A NO.146/BANG/2015 PAGE 42 OF 52 THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. MOREOVER, THIS IS ALSO NOT A COMPARABLE IN THE CASE OF M/S. MERCER CONSULTING (INDIA) P. L TD. (SUPRA), WHICH INDICATES THAT THE TPO THEREIN HAS EXCLUDED IT AT THE OUTSET. IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPARABLE, FROM THE LIST OF COMPARABLES SELECTED. 13. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSE SSEE, THERE WAS ACQUISITION OF A COMPANY BY M/S. ACCENTIA TECHNOLOGIES LIMITED DURING THE RELEVANT YEAR, AND THE SAID COMPANY, THEREFORE, CANNOT BE CONSIDERED AS COMPARABLE DUE TO THIS EXTRAORDINARY EVENT WHICH OCCURRED IN THE RELEVANT YEAR AS RIGHTLY HELD BY THE TRIBUNAL INTER ALIA IN THE CASE OF EXCELLENCE DATA RESEARCH P. LTD. (SUPRA). ALTHOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SOUGHT TO CONTEND THAT THE ACQUISITION OF A COMPANY BY M/S. ACCENTIA TECHNOLOGIES LTD. TOOK PLACE AT THE FAG END OF TH E YEAR UNDER CONSIDERATION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT THE PROCESS OF ACQUISITION HAD STARTED ON 15.5.2008 ITSELF, I.E. IN THE EARLIER PART OF THE YEAR UNDER CONSIDERATION. WE, 11 IT(TP)A NO.169/BANG/2016 THEREFORE, FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF EXCELLENCE DATA RESEARCH SERVICES PVT. LTD. (SUPRA) AND DIRECT THE AO/TPO TO EXCLUDE THE ACCENTIA TECHNOLOGIES LIMITED FROM THE LIST OF COMPARABLES. .. INFOSYS BPO 20. AS REGARDS SELECTION OF INFOSYS BPO AS A CO MPARABLE COMPANY, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE SAID COMPANY CANNOT BE TAKEN AS COMPARABLE BECAUSE OF ITS UNCOMPARABLE SIZE OF OPERATIONS. HE HAS CONTENDED THAT THE TURNOVER OF THE SAID COMPANY WAS MANY TIMES HIGHER THAN THAT OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ALTHOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THE SIZE OF OPERATIONS DOES NOT MATTER AS FAR AS SELECTION OF COMPARABLES IS CONCERNED ESPECIALLY IN THE SECTOR OF IT ENABLED SERVICES , IT IS OBSERVED THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. AGNITY TECHNOLOGIES PVT. LTD. (219 TAXMAN 26) HOLDING THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLES WITH SMALLER COMPANIES LIKE THE ASSESSEE IN THE PRESENT CASE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY TECHNOLOGIES P. LTD. (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE INFOSYS BPO FROM THE LIST OF COM PARABLES. 32. AS FAR AS ACCENTIA TECHNOLOGY LTD., IS CONCERNED, EVEN DURING THE PREVIOUS YEAR RELEVANT TO AY 2010 - 11, THERE WAS AMALGAMATION OF ASCENT INFOSERVE PRIVATE LIMITED WITH ACCENTIA TECHNOLOGY LTD., AND CONSEQUENT THERETO THE ASSETS AND LIABILI TIES AND ACCUMULATED RESERVES AND THE FINANCIAL RESULTS FOR THE YEAR ENDED 31ST MARCH, 2010, OF THE AMALGAMATING COMPANY WERE INCORPORATED IN THE AMGALAMATED COMPANY. AS FAR AS INFOSYS BPO LTD., IS CONCERNED, THE OBSERVATIONS MADE BY THE TRIBUNAL IN THE DE CISION REFERRED IN THE EARLIER PARAGRAPH WILL HOLD GOOD FOR THE PRESENT AY 2010 - 11 ALSO. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE DIRECT THAT THE AFORESAID 2 COMPANIES BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES FOR T HE PURPOSE OF COMPUTING ARITHMETIC MEAN FOR COMPARABILITY PURPOSE. THE TPO IS DIRECTED TO GIVE EFFECT ACCORDINGLY. EVEN AFTER EXCLUSION OF ACCENTIA TECHNOLOGIES LTD, ALONG WITH THE EXCLUSION OF FOUR COMPARABLE COMPANIES DIRECTED BY DRP, THERE WILL BE FOU R COMPANIES LEFT IN THE LIST OF COMPARABLES WHICH, IN OUR OPINION, CANNOT BE CONSIDERED AS TOO SMALL A SAMPLE FOR AN EFFECTIVE TP STUDY. IN THE CIRCUMSTANCES, WE DIRECT EXCLUSION OF ACCENTIA TECHNOLOGIES LTD ALSO FROM THE LIST OF COMPARABLES. ORDERED ACCO RDINGLY. 20. NO DOUBT THE SAID DECISION WAS FOR A. Y. 2010 - 11, BUT THE CONDITIONS WHICH PREVAILED IN THE SAID PREVIOUS YEAR MORE OR LESS EXISTED IN THE IMPUGNED ASSESSMENT YEAR ALSO. CONSIDERING ALL THESE ASPECTS, WE ARE THEREFORE OF THE OPINION THAT ACC ENTIA TECHNOLOGIES LTD, WAS NOT A GOOD COMPARABLE FOR THE PURPOSE OF ALP STUDY OF THE ASSESSEE. 30. THE LEARNED DR BROUGHT TO OUR NOTICE THE DECISION OF THE DRP AT PARA - 25 OF ITS ORDER ON THE COMPARABILITY OF THIS COMPANY. HE BROUGHT TO OUR NOTICE THAT T HIS COMPANY WAS FOUND COMPARABLE IN ITES SEGMENT WITH THE ASSESSEE IN ASSESSEES OWN CASE FOR AY 2007 - 08 IN IT (TP) A.NO.973/BANG/2010. THE LEARNED DR SUBMITTED THAT THE FUNCTIONAL PROFILE OF THIS COMPANY AND THE ASSESSEE WAS HELD TO BE SAME BY THE TRIBUNA L IN THE AFORESAID DECISION. 12 IT(TP)A NO.169/BANG/2016 31. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSION. IT IS TRUE THAT THE TRIBUNAL FOUND THIS COMPANY TO BE COMPARABLE WITH THE ASSESSEE IN AY 2007 - 08. BUT THE DECISION OF THE TRIBUNAL REFERRED TO BY THE LEARNED DR IN THE CASE OF SWISS RE SHARED SERVICES (SUPRA) RELATES TO AY 2010 - 11. THE TRIBUNAL HAS GIVEN ELABORATE REASONS FOR EXCLUSION OF THIS COMPANY AS A COMPARABLE COMPANY AND CONCLUDED AT PARAGRAPH 17 OF ITS ORDER THAT THIS COMPANY WAS NOT COMPARABLE WITH A LOW END OR MID END SERVICE PROVIDER IN ITES AS IT WAS IN HIGH END SERVICE PROVIDER IN ITES. IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL, WE ARE OF THE VIEW THAT ACCENTIA TECHNOLOGY LTD., SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ALP AFTER EXCLUDING ACCENTIA TECHNOLOGY LTD., FROM THE LIST OF COMPARABLES THAT REMAINS AFTER THE ORDER OF THE DRP. (II) ICRA ONLINE LIMITED : THE COMPANY IS HAVING TURNOVER OF RS. 15.67 CRORES AND HAS THREE BUSINESS SEGMENTS NAMELY, INFORMATION SERVICES, SOFTWARE S ERVICES AND OUTSOURCED SERVICES AND T HE TPO HAS CONSIDERED THE OUTSOURCED SERVICES SEGMENT AS COMPARABLE. FURTHER T HE ANNUAL REPORT OF THE COMPANY DOES NOT PROVIDE ANY DESCRIPTION AS TO TH E NATURE OF THE SERVICES CONTAINED IN THE SEGMENT AND THE OUTSOURCING SEGMENT OF THE COMPANY CONTAINS KPO SERVICES . FURTHER FUNCTIONALLY DIFFERENT AS T HE COMPANY IS ENGAGED IN PROVISION OF HIGH END KPO SERVICES. FURTHER M ARGIN ERROR OCCURRED DUE TO T HE U NALLOCATED DEPRECIATION AMOUNT WHICH WAS NOT CONSIDERED BY THE LEARNED TPO AND REL IED ON DECISION OF SITEL INDIA PVT. LTD . VS. DCIT IN ITA NO.1821/MUM/2016 FOR ASST. YEAR 2011 - 12 DT.3.5.2019 AT PAGE 10 PARAS 5.1 TO 5.4 AS UNDER : 5.1 THE TPO INCLUDED ICRA ONLINE LTD. (SEG) (IN SHORT ICRA)ON THE GROUND THAT IT IS ENGAGED IN DATA PROCESSING AND DATA MINING AND ACCORDINGLY IT IS PROVIDING SIMILAR SERVICES (ITES). THE DRP UPHOLDS THE ORDER OF THE TPO, WHICH IS FOLLOWED BY THE AO. 5.2 THE LD. COUNSELS OF THE ASSESSEE SUBMIT THAT AS PER THE ANNUAL REPORT, THE COMPANY HAS FOLLOWING THREE BUSINESS SEGMENTS: (I) INFORMATION SERVICES, (II) SOFTWARE SERVICES AND (III) OUTSOURCE SERVICES 13 IT(TP)A NO.169/BANG/2016 IT IS FURTHER STATED THAT THE TPO HAS CONSIDER ED THE OPERATIONS OF THE OUTSOURCED SERVICES SEGMENT AS COMPARABLE TO THE OPERATIONS OF THE APPELLANT. THE LD. COUNSELS ARGUE THAT THE ANNUAL REPORT OF THE COMPANY DOES NOT PROVIDE ANY DESCRIPTION AS TO THE NATURE OF THE SERVICES CONTAINED IN THE SEGME NT. HOWEVER, A REFERENCE MAY BE DRAWN TO THE ANNUAL REPORT OF ICRA LTD., THE HOLDING COMPANY OF ICRA FROM WHERE IT CAN BE SEEN THAT THE OUTSOURCED SEGMENT OF THE COMPANY RELATES TO KPO AND ONLINE SOFTWARE SERVICES. THE LD. COUNSELS FURTHER SUBMIT THA T THE ITAT IN APPELLANTS OWN CASE FOR AY 2010 - 11 HAS FOLLOWED THE TRIBUNAL DISCUSSION IN THE CASE OF TESCO HINDUSTAN SERVICE CENTRE PVT. LTD. V. DCIT (ITA NO. 191/BANG/2015) TO REJECT THE COMPANY FUNCTIONALLY NOT COMPARABLE TO THE APPELLANT I.E. COMPANIES NOT ENGAGED IN PROVIDING ITES (BPO SERVICES). IN THIS REGARD, RELIANCE IS PLACED BY THEM ON THE FOLLOWING ORDERS OF THE TRIBUNAL : (I) M/S SITEL OPERATING CORPORATION INDIA PVT. LTD. (SINCE AMALGAMATED WITH SITEL INDIA PVT. LTD.) V. ITO (ITA NO. 598/BAN G/2015 & ITA NO. 452/BANG/2015) DATED 25 APRIL 2018 [AY 2010 - 11] (II) M/S TESCO HINDUSTAN SERVICE CENTRE PVT. LTD. V. DCIT(IT(TP)A NO. 191/BANG/2015) DATED 25 JANUARY 2017 [AY 2010 - 11] (III) OUTSOURCE PARTNERS INTERNATIONAL V. DCIT (IT(TP)A NO. 337/BAN G/2015) [AY 2010 - 11]. 5.3 ON THE OTHER HAND, THE LD. DR SUBMITS THAT ICRA IS ENGAGED IN DATA PROCESSING AND DATA MINING AND ACCORDINGLY IT IS ENGAGED IN PROVIDING SIMILAR SERVICES (ITES). THUS IT IS STATED THAT THE INCLUSION OF THE ABOVE COMPANY BY THE T PO/AO IN THE LIST OF FINAL COMPARABLES BE CONFIRMED. 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. THE TPO HAS CONSIDERED THE OPERATIONS OF THE OUTSOURCE D SERVICES SEGMENT OF ICRA AS COMPARABLE TO THE OPERATIONS OF THE APPELLANT. HOWEVER, WE FIND THAT THE ANNUAL REPORT OF THE COMPANY DOES NOT PROVIDE ANY DESCRIPTION AS TO THE NATURE OF THE SERVICES CONTAINED IN THIS SEGMENT. AS PER PAGE 532 OF THE P/B, A REFERENCE MAY BE MADE TO THE ANNUAL REPORT OF ICRA LTD., THE HOLDING COMPANY OF ICRA FROM WHERE IT CAN BE SEEN THAT THE OUTSOURCED SEGMENT OF THE COMPANY RELATES TO KPO AND ONLINE SOFTWARE SERVICES. ALSO PAGE 8 OF THE ANNUAL REPORT OF ICRA LTD. DELINEATES THE BUSINESS OF ICRA STATING THAT THE COMPANY IS ENGAGED IN PROVIDING KPO AND ONLINE SOFTWARE SERVICES. AS PER THE DESCRIPTION AT PAGE 532 OF THE P/B, THE KNOWLEDGE PROCESS OUTSOURCING DIVISION PROVIDES FINANCIAL AND ANALYTICAL SERVICES AND SUPPORT TO CLIE NTS IN THE AREA OF DATA EXTRACTION, AGGREGATION, ELECTRONIC CONVERSION OF FINANCIAL STATEMENTS, VALIDATION AND ANALYSIS, ACCOUNTING AND FINANCE, RESEARCH AND ANALYTICS. THUS THE APPELLANT IN THE INSTANT CASE PERFORMS ROUTINE ITES COMPRISING OF CONTA CT/CALL CENTRE SERVICES AND HENCE IS A ROUTINE BPO SERVICE PROVIDER AND CANNOT BE COMPARED TO A COMPANY PROVIDING KPO SERVICES SUCH AS ICRA. ALSO WE FIND THAT THE TPO HAS WRONGLY COMPUTED THE MARGIN OF THE COMPANY AS 33.54% INSTEAD OF THE CORRECT MARGIN 22.32%, BECAUSE THE TPO HAS EXCLUDED FOREIGN EXCHANGE INCOME AND OTHER RECEIPTS 14 IT(TP)A NO.169/BANG/2016 (ALLOCATED BASIS REVENUE IN EACH SEGMENT), WHEREAS, THE SA ME IS TO BE ADDED FOR INFORMATION SERVICE, OUTSOURCE SERVICE AND SOFTWARE SERVICE TO ARRIVE AT THE CORRECT MARGIN. IN ASSESSEES OWN CASE FOR AY 2010 - 11, THE ITAT A BENCH BANGALORE HAS FOLLOWED THE TRIBUNAL DISCUSSION IN THE CASE OF TESCO HINDUSTAN SE RVICE CENTRE PVT. LTD. (SUPRA) TO REJECT THE COMPANIES FUNCTIONALLY NOT COMPARABLE TO THE APPELLANT I.E. COMPANIES NOT ENGAGED IN PROVIDING ITES (BPO) SERVICE. IN THE CASE OF TESCO HINDUSTAN SERVICE CENTRE PVT. LTD. (SUPRA), ICRA HAS BEEN HELD TO BE NON - CO MPARABLE TO AN ITES SERVICE PROVIDER. ACCORDINGLY, FOLLOWING THE DECISION OF TESCO HINDUSTAN SERVICE CENTRE PVT. LTD. (SUPRA) AND THE OBSERVATIONS IN THE TRIBUNAL DECISION IN APPELLANTS OWN CASE FOR AY 2010 - 11, WE REJECT ICRA ONLINE AS A COMPARA BLE. CONSIDERING THE DECISION OF EMC SOFTWARE AND SERVICES (INDIA) PVT. LTD. DISCUSSED THE ACCENTURE TECHNOLOGIES LTD. CANNOT BE CONSIDERED AS COMPARABLE WITH ASSESSEE COMPANY IN ITES. WE DIRECT THE TPO TO EXCLUDE THE COMPARABLE FOR DETERMINING ALP. S IMILARLY ICRA ONLINE LIMITED IS DIRECTED TO BE EXCLUDED FOR DETERMINING ALP BASED ON THE DECISION OF TRIBUNAL IN SITEL INDIA PVT. LTD. VS. DCIT (SUPRA). 6. ON THE SECOND ISSUE OF INCLUSION OF COMPARABLES, THE LD. AR SUBMITTED THAT 6 COMPANIES ARE TO BE INCLUDED WHICH ARE AS UNDER : - (I) E4E HEALTHCARE BUSINESS SERVICES PVT. LTD . TURNOVER IS RS.61.32 CRORES AND IS ENGAGED IN PROVIDING HEALTHCARE OUTSOURCING SERVICES. THE TPO HAD RETAINED THE COMPANY AS A COMPARABLE AND THE APPELLANT HAS NOT RAISED ANY OBJECTIONS AGAINST THE SAME BEFORE TPO OR DRP. THE DRP SUO MOTO REJECTED THIS COMPARABLE DUE TO INCONSISTENCY IN ACCOUNTING OF BAD DEBTS AND P ROVISION FOR BAD DEBTS DEBITED TO THE P&L AND DOES NOT REPRESENT INCONSISTENCY IN OVERALL ACCOUNTING POLICIES. FURTHER L OSS DUE TO BAD DEBTS CAN ONLY BE REASONABLY 15 IT(TP)A NO.169/BANG/2016 ESTIMATED, HOWEVER IT COULD OCCUR DUE TO VARIOUS UNEXPECTED FAC TORS LEADING TO DIFFERENCE IN QUANTUM OF WRITE OFF/PROVISIONS. THIS IS NEITHER A QUALITATIVE FILTER NOR A FUNCTIONAL CRITERION IN ORDER T O REJECT A COMPARABLE WHICH IS FUNCTIONAL LY COMPARABLE TO THE APPELLANT AND TPO HAS CONSIDERED IN ASSESSEE'S OWN CASE FOR ASST. YEAR 2012 - 13 AT PAGE 15 PARA 8.5 AS UNDER : (II) C OSMIC GLOBAL LIMITED IS HAVIN G TURNOVER OF RS.6.25 CRORES AND F UNCTIONALLY COMPARABLE AS T HE COMPANY EARNS REVENUE FROM MEDICAL TRANSCRIPTION, TRANSLATION AND BPO SERVICES. THE TPO HAD RETAINED THE COMPANY A S A COMPARABLE AND THE ASSESSEE HAD NOT RAISED ANY OBJECTIONS AGAINS T THE SAME BEFORE TPO OR 16 IT(TP)A NO.169/BANG/2016 DRP. BUT T HE DRP SUO MOTO REJECTED THE COMPARABLE BY ASSUMING TRANSLATION CHARGES TO BE IN THE NATURE OF OUTSOURCING CHARGES. HOWEVER, THI S ACCOUNTS ONLY 44% OF COST INDICATING THAT THE COMPANY IS NOT PURELY OPERATING ON THE ALLEGED OUTSOURCING MODEL AND ALSO EMPLOYEE COST IS 39% OF TOTAL COST AND TRANSACTIONS ARE NOT OUTSOURCED AND WAS INCLUDED BY THE TPO IN ASSESSEE'S OWN CASE FOR ASST. YE AR 2009 - 10 & 2010 - 11 AT TPO ORDER PAGES 14 & 15 PARA 10 AS UNDER : 17 IT(TP)A NO.169/BANG/2016 (III) INFORMED TECHNOLOGIES INDIA LIMITED IS HAVING TURNOVER OF RS.1.75 CRORES AND F UNCTIONALLY COMPARABLE AS THE COMPANY IS ENGAG ED IN RENDERING BPO SERVICES. BUT T HE TPO AND THE DRP HAD REJECTED THE COMPANY STATING THAT RENTAL INCOME IS MORE THAN THE OPERATING INCOME. THE TPO HAS NOT GIVEN FINDING OR INSTANCES OF FUN CTIONAL DISSIMILARITY AND THE TPO HAS NO RESERVATIONS. RENTAL INCOME IS NON - OPERATING IN NATURE AND THE MERE FACT OF THE NON - OPERATING INCOME BEING HIGHER THAN THE OPERATING INCOME DOES NOT RENDER THE COMPANY AS NON - COMPARABLE AND I T IS FORMING A PART OF THE FINAL SET OF COMPARABLES CONDUCTED BY THE LEARNED TPO IN ASSESSEE'S OWN CASE IN AY 20 09 - 10, 2010 - 11 AND 2012 - 13 AND TPO CHART REFERRED ABOVE FOR ASST. YEAR 2012 - 13. (IV) MICROGENETIC SYSTEMS LIMITED IS HAVING TURNOVER OF RS.1.28 CRORES AND FUNCTIONALLY COMPARABLE AS T HE COMPANY IS INVOLVED IN THE PROVISION OF MEDICAL 18 IT(TP)A NO.169/BANG/2016 TRANSCRIPTION CHARGES. WHEREAS T H E TPO REJECTED THE COMPANY DUE TO NON - AVAILABILITY OF DATA IN THE PUBLIC DATABASE AND ALSO T HE DRP REJECTED THE COMPANY STATING THAT EXPENSE TO THE EXTENT OF 23% OF TOTAL COST HAS BEEN INCURRED IN OUTSOURCING OF THE MEDICAL TRANSCRIPTION ACTIVITY. FURTHER T HE COMPANY HAS SIGNIFICANT EMPLOYEE COSTS. THIS INDICATES THAT THE COMPANY IS NOT PURELY IN OUTSOURCING MODEL AND OPERATE PRIMARILY THROUGH ITS OWN EMPLOYEES. THE TPO HAS NOT CITED ANY INSTANCES OF FUNCTIONAL DISSIMILARITY AND T HE DRP HAS MADE ASSUMPTI ONS REGARDING THE TOTAL EXPENSES, WITHOUT GIVING REGARDS TO THE ASSESSEE'S CONTENTI ONS ON FUNCTIONAL COMPARABILITY AND WAS CONDUCTED BY TPO AS COMPARABLE TO THE ASST. YEAR 2012 - 13. TPO ORDER FOR ASST. YEAR 2012 - 13 REFERRED ABOVE. (IV) CALIBER POINT BUSINE SS SOLUTIONS LIMITED IS HAVING TURNOVER OF RS.79. 07 CRORES AND F UNCTIONALLY COMPARABLE AND IS ENGAGED IN COMPARABLE SERVICES AND HAS SEGMENTAL INFORMATION. THE TPO AND THE DRP REJECTED THIS COMPANY ON THE BASIS OF DIFFERENT FINANCIAL YEAR ENDING. THOUGH THE COMPANY HAD DIFFERENT FINANCIAL YEAR ENDING, IT WAS OPERATING DURING THE SA ID PERIOD A ND (V) R SYSTEMS INTERNATIONAL LIMITED IS HAVING TURNOVER OF RS.20.21 CRORES. AND F UNCTIONALLY COMPARABLE AND IS ENGAGED IN COMPARABLE ACTIVITIES OF BPO SERVICES AND HAS SEGMENTAL INFORMATION. THE TPO AND THE DRP REJECTED THIS COMPANY ON THE BASIS OF DIFFERENT FINANCIAL YEAR ENDING. THE COMPANY EVEN THOUGH HAVING DIFFERENT FINANCIAL YEAR ENDING, WERE OPERATING DURING THE SAME 19 IT(TP)A NO.169/BANG/2016 PERIOD OF TIME . THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED WITH JUDICIAL DECISION AND WE FIND DRP HAS DEALT AT PAGE 5 P ARA 6 (A) AS UNDER : AND SIMILARLY R. SYSTEMS INTERNATIONAL LTD., DRP DEALT AT PAGE 7 PARA 6(E) AS UNDER : 20 IT(TP)A NO.169/BANG/2016 WE CONSIDERING THE D I R E C T I O N S AND ORDER OF DRP AND TPO, WE ARE NOT INCLINED TO INCLUDE ABOVE TWO COMPARABLES AND DISMISS THE ASSESSEE'S GROUND OF APPEAL. ACCORDINGLY, WE DIRECT THE A.O/TPO TO INCLUDE AFORESAID 4 COMPANIES I.E. (1) E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. (2) COSMIC GLOBAL LIMITED (3) INFORMED 21 IT(TP)A NO.169/BANG/2016 TECHNOLOGIES INDIA LTD. AND (4) MICROGENETIC SYSTEMS LIMITED IN THE LIST OF COMPARABLES FOR DETERMINING THE ALP. 7. THE LD. AR ARGUED ON THE WORKING CAPITAL ADJUSTMENT AND THE FOREIGN EXCHANGE GAIN/LOSS, WE FOUND IN THE COURSE OF HEARING, NO DETAILS WERE FILED IN RESPECT OF FOREIGN EXCHANGE GAIN/LOSS AND THE DRP REFERRED AT PARA 8 OF ORDER WHERE THE ASSESSEE HAS FAILED TO SUBMIT THE DETAILS. AS PRAYED BY THE LD. AR, WE RESTORE TH ESE DISPUTED ISSUES TO THE FILE OF TPO WITH A DIRECTION TO CONSIDER THE CLAIM OF ASSESSEE AND THE ASSESSEE SHALL SUBMIT THE DETAILS IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION. SIMILARLY, THE ADJUSTMENT BENEFIT OF +/ - 5% WAS NOT CONSIDERED BY THE TPO IN HIS ORDER AND THE SAME HAS TO BE ALLOWED A ND WE ORDER ACCORDINGLY. 8. IN THE RESULT, THE ASSESSEE'S APPEAL IS PARTLY ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 6 T H S E P T . , 2019. S D / - S D / - (A.K. GARODIA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 0 6 .0 9 . 2019. *REDDY GP 22 IT(TP)A NO.169/BANG/2016 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE