Appeal Details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 6021 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 6 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-03-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
04-10-2016
Assessment Year
2007-2008
Appeal Filed On
30-09-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER S.NO. ITA NO. AY APPELLANT RESPONDENT 1 1762/H/11 2007-08 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYD. M/S MONSTER.COM INDIA PVT. LTD., HYD. PAN - AACCM3695G 2 1697/H/11 2007-08 M/S MONSTER.COM INDIA PVT. LTD., HYD. PAN - AACCM3695G COMMISSIONER OF INCOME-TAX (A), HYDERABAD. 3 49/H/13 2008-09 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYD. M/S MONSTER.COM INDIA PVT. LTD., HYD. PAN - AACCM3695G 4 69/H/13 2008-09 M/S MONSTER.COM INDIA PVT. LTD., HYD. PAN - AACCM3695G THE INCOME TAX OFFICER, WARD 16(2), HYD. 5 1333/H/14 2009-10 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYD. M/S MONSTER.COM INDIA PVT. LTD., HYD. PAN - AACCM3695G 6 872/H/14 2009-10 M/S MONSTER.COM INDIA PVT. LTD., HYD. PAN - AACCM3695G DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYD. REVENUE BY : SHRI P. CHANDRA SEKHAR ASSES SE E BY : SHRI B. SATYANARAYANA MURTHY 2 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. DATE OF HEARING 28-02-2017 DATE OF PRONOUNCEMENT 31-03-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE APPEALS ARE PREFERRED BY THE ASSESSEE AS WEL L AS REVENUE AGAINST THE ORDERS OF COMMISSIONER OF INCOM E-TAX (APPEALS) (IN SHORT CIT(A)) FOR ASSESSMENT YEARS 2007-08 TO 2 009-10. AS IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, THE Y WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PA SSED FOR THE SAKE OF CONVENIENCE. ITA NO. 1697/H/11 FOR AY 2007-08 BY ASSESSEE AND IT A NO. 1762/H/11 BY THE REVENUE. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING ONLINE RECRUIT MENT SERVICES. IT FILED ITS RETURN OF INCOME FOR AY 2007-08 ON 30/10/ 2007 ADMITTING LOSS OF RS. 3,68,28,299/-. THE RETURN OF INCOME WAS PROC ESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) WERE ISSUED, AGAINST WHICH, THE AR OF THE ASSESSEE FURNISHED INFORMATION/DETAILS CALLED F OR. THEREAFTER, THE AO COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 92CA R.W.S. 144C OF THE ACT AND DETERMINED THE TOTAL INCOME OF THE ASSE SSEE AT RS. 22,31,19,883/- BY MAKING THE FOLLOWING ADDITIONS.: 1. DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO PF 2. TAXING OF ACCRUED INCOME SHOWN AS UNMATURED ADVA NCES IN THE BALANCE SHEET. 3. ARMS LENGTH PRICE DETERMINED BY TPO U/S 92CA OF THE ACT. 3. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE CIT(A) AGAINST THE ADDITIONS IN R ESPECT OF ACCRUED 3 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. INCOME SHOWN AS UNMATURED ADVANCES AND ARMS LENGTH PRICE ADJUSTMENT U/S 92CA OF THE ACT. 4. AS REGARDS THE ISSUE OF TAXING OF ACCRUED INCOME SHOWN AS UNMATURED ADVANCES IN THE BALANCE SHEET, THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND REL YING ON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE PREVIOUS YEAR, DELETED THE ADDITION MA DE BY THE AO. 5. AS REGARDS THE ADDITION IN RESPECT OF INTERNATIO NAL TRANSACTIONS, THE CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US AGAINST THE DELETION OF ADDITION ON ACCOU NT OF UNMATURED ADVANCES AND THE ASSESSEE IS IN APPEAL BEFORE US AG AINST PARTIAL RELIEF ON ACCOUNT OF INTERNATIONAL TRANSACTIONS. 7. AS REGARDS THE ISSUE OF TAXING OF ACCRUED INCOME SHOWN AS UNMATURED ADVANCES IN THE BALANCE SHEET, RAISED BY THE REVENUE IN ITS APPEAL (GROUND NOS. 1 & 2), THE AO OBSERVED AS UNDER: 1. THE ADVANCES SHOWN BY THE ASSESSEE ARE ALREADY A CCRUED TO THE ASSESSEE. THESE ARE NOT REFUNDABLE RECEIPTS. AS PER NOTES TO ACCOUNTS AT POINT NO.2, IT WAS MENTIONED THAT UNMA TURED INCOME INCLUDES THE AMOUNT WHEREOF HAS NOT BEEN LIN KED AND IDENTIFIED WITH THE INDIVIDUAL CUSTOMERS - CONTRACT S IN VIEW OF VOLUMES AND HETEROGENEOUS NATURE OF CONTRACTS. BESI DES, THERE ARE NO UNIFORM PAYMENT TERMS IN THE VARIETY OF CONT RACTS ENTERED INTO DURING THE YEAR. THIS, HOWEVER, DOES NOT IMPAC T INCOME ACCRUAL AND DISCLOSURE IN THE BALANCE SHEET EXCEPT IN CASE OF DEBTORS TO THE EXTENT OF AMOUNT NOT SO DETERMINED.' THIS NOTE TO THE ACCOUNTS CLEARLY INDICATES THAT THE INCOME IS A LREADY ACCRUED IN RESPECT OF THESE ADVANCES. 2. THE ASSESSEE-COMPANY WAS REQUESTED TO SUBMIT CON FIRMATIONS FROM THE COMPANIES FROM WHOM THESE ADVANCES ARE REC EIVED TO SHOW THAT THESE AMOUNTS ARE APPEARING AS LIABILITIE S IN THEIR BALANCE SHEET TO PROVE THE POINT THAT THIS INCOME I S NOT ACCRUED TO THE ASSESSEE. IF THE PAYING COMPANY DEBITS THE F ULL EXPENDITURE ON THESE PAYMENTS, THE RECEIVING COMPAN Y CANNOT SHOW PART OF THE AMOUNT AS RECEIPT AND PART OF THE AMOUNT AS ADVANCE. THE EXAMINATION OF AGREEMENT COPIES ENTERE D BY ASSESSEE WITH OTHERS FOR PROVIDING ON-LINE SERVICES , CLEARLY 4 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. INDICATE THAT THE INCOME IS ALREADY ACCRUED TO THE ASSESSEE. THERE IS NO CLAUSE FOR REFUND OF THESE ADVANCES IN THE AGREEMENTS ENTERED BY THE ASSESSEE WITH OTHERS. 3. THE ASSESSEE-COMPANY IS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING AND THEREFORE, THE COMPANY HAS TO OFFER THE ENTIRE AMOUNT AS RECEIPTS AND PROVIDE FOR PROVISION FOR EX PENSES TO BE INCURRED, IF ANY, IN RESPECT OF THESE AMOUNTS BASED ON SOME SCIENTIFIC METHOD OR PAST EXPERIENCE AND IT CANNOT POSTPONE THE ENTIRE AMOUNTS TO THE SUBSEQUENT PERIOD ON THE GROU ND THAT THE PERIOD OF SERVICE IS NOT YET COMPLETED. THE ASSESSE E-COMPANY ALREADY DEBITED HUGE DIRECT OR INDIRECT EXPENSES ON THESE RECEIPTS AND POSTPONEMENT OF ALL THESE RECEIPTS RES ULTS IN DISTORTION OF TRUE PROFITS. 4. WHATEVER BE THE METHOD FOLLOWED, RECOGNITION OF REVENUE HAS TO BE IN CONSONANCE WITH THE METHOD OF ACCOUNTING S O FOLLOWED VIS--VIS THE NATURE AND CHARACTER OF THE AMOUNT AC CRUED OR RECEIVED AND THE YEAR OF SUCH ACCRUAL OR RECEIPT [S TATE BANK OF TRAVANCORE 158 ITR 102 (SC)]. THE ASSESSING OFFICER HAS THE POWER TO ADOPT THE CORRECT METHOD OF VALUATION OF C LOSING STOCK INSTEAD OF WRONG METHOD ADOPTED BY THE ASSESSEE FOR A LONG PERIOD. METHOD OF STOCK VALUATION FOLLOWED SHOULD N OT ONLY BE CONSISTENT BUT SHOULD ALSO BE CORRECT. BRITISH PAIN TS INDIA LIMITED 188 ITR 44 (SC). SIMILAR ISSUE IS INVOLVED IN THE ASSESSEE'S OWN CAS E AND ADDITIONS WERE MADE ON THIS ISSUE FOR THE ASSESSMEN T YEARS 2004-05 TO 2006-07. ACCORDINGLY, THE UNMATURED INCO ME OF RS.51,02,38,034/- IS TREATED AS ASSESSEE'S INCOME. IN THIS CASE, WHILE COMPLETING THE SCRUTINY ASSESSMENT FOR THE AS SESSMENT YEAR 2006-07, THE UNMATURED INCOME/ADVANCE SHOWN OF RS.30,11,23,732/- WAS TAXED AS INCOME. IN THE ASSES SMENT YEAR 2007-08, THE ASSESSEE OFFERED THESE ADVANCES AS REC EIPTS AND THEREFORE, THESE AMOUNTS ARE EXCLUDED FROM THE RECE IPTS. THE ADDITION ON THIS COUNT COMES TO RS.20,91,14,302/- ( I.E., RS.51,02,38,034 RS.30,11,23,732).' 8. THE CIT(A) FOLLOWING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE, DELETED THE ADDITION MADE BY THE AO. 9. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 10. BEFORE US, THE LD. DR HAS CONCEDED THAT THE ISS UE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF ITAT IN ASSESSE ES OWN CASE, WHILE, THE LD. AR HAS RELIED ON THE ORDER OF THE CI T(A). 5 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 11. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE ISSUE IS COVERED IN FAVOUR OF THE AS SESSEE BY THE DECISION OF THE ITAT, HYDERABAD IN ASSESSEES OWN C ASE IN ITA NO. 1081/HYD/04, FOR AY 2001-02, ORDER DATED 10/08/2007 WHEREIN THE COORDINATE BENCH OBSERVED AS UNDER: IN THE SECOND GROUND, THE REVENUE IS AGGRIEVED AG AINST THE DELETION OF THE ADDITION MADE ON ACCOUNT OF DIFFERE NCE IN PROFESSIONAL RECEIPTS. IT WAS NOTED BY THE AO THAT AS PER TWO TDS CERTIFICATES, THE ASSESSEE HAD RECEIVED PROFESS IONAL FEES AGGREGATING TO RS. 1,39,125 (RS. 1,18,125 + 21,000) . HOWEVER, THE ASSESSEE HAD SHOWN TOTAL RECEIPTS OF RS. 60,558 /- ONLY. THE EXPLANATION OF THE ASSESSEE WAS THAT IT FOLLOWS MER CANTILE SYSTEM OF ACCOUNTING AND UNDER THE SAID SYSTEM, IT RECOGNI ZES THE REVENUE ON THE BASIS OF PROPORTIONATE COMPLETION ME THOD WHICH IS RECOGNIZED BY THE INSTITUTE OF CHARTERED ACCOUNT ANTS OF INDIA (ICAI) IN ITS ACCOUNTING STANDARD OF REVENUE RECOGN ITION. UNDER THIS METHOD, REVENUE IS RECOGNIZED PROPORTIONATELY BY REFERENCE TO THE PERFORMANCE OF EACH ACT. THE REVENUE RECOGNI ZED UNDER THIS METHOD WOULD BE DETERMINED ON THE BASIS OF CON TRACT VALUE, ASSOCIATE COST, NUMBER OF ACTS OR OTHER SUITABLE BA SIS. WHEN SERVICES ARE PROVIDED BY AN INDETERMINATE NUMBER OF ACTS OVER A PERIOD OF TIME, REVENUE IS RECOGNIZED ON A STRAIGHT LINE BASIS OVER THE SPECIFIC PERIOD. HOWEVER, THE ASSESSING OF FICER WAS OF THE VIEW THAT SINCE THE SAID ACCOUNTING STANDARD HA S NOT BEEN NOTIFIED RECOGNIZED BY THE CBDT UNDER S.145(2) OF T HE IT ACT 1961 (THE ACT), THE RECEIPTS HAVE TO BE ACCOUNTED F OR ON THE BASIS OF TDS CERTIFICATES. ACCORDINGLY, THE AMOUNT OF RS.78,567 WAS ADDED AS DIFFERENCE IN PROFESSIONAL RECEIPTS. T HE CIT(A) CONSIDERED THE EXPLANATION OF THE ASSESSEE AND FOLL OWING THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF BHARAT TELEVISION LTD. IN ITA NO.1797/HYD/89 AND OF THE MADRAS BENCH IN THE CASE OF SAKURA ELECTRONICS (P) LTD. AL LOWED THE CLAIM OF THE ASSESSEE. THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESEN TATIVE WAS THAT SINCE THE ASSESSEE HAS ACCOUNTED FOR ONLY PROP ORTIONAL RECEIPT, CREDIT FOR THE ENTIRE TDS CANNOT BE ALLOWE D. ON THE OTHER HAND, THE LEARNED COUNSEL SUPPORTED THE ORDER OF TH E CIT(A). ON DUE CONSIDERATION OF THE MATTER, WE UPHOLD THE O RDER OF THE CIT(A). WHETHER A PARTICULAR ACCOUNTING STANDARD HA S BEEN NOTIFIED OR NOT IS NOT MATERIAL. WHAT IS TO BE SEEN IS WHETHER THE ASSESSEE HAS FOLLOWED A RECOGNIZED METHOD OF ACCOUN TING OR NOT. IF METHOD FOLLOWED BY THE ASSESSEE IS SUCH WHEREBY CORRECT INCOME CANNOT BE DEDUCED, THEN ONLY THE ASSESSING O FFICER HAS 6 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. THE AUTHORITY TO ADOPT A REASONABLE BASIS TO DETERM INE THE TOTAL INCOME. IN THE INSTANT CASE,. IT CANNOT BE DISPUTED THAT THE ASSESSEE HAS FOLLOWED A RECOGNIZED METHOD OF ACCOUN TING AND HENCE, THERE IS NO QUESTION OF ADDING ANY FURTHER A MOUNT TO THE TOTAL INCOME. THERE BEING NO INFIRMITY IN THE ORDER OF THE CIT(A), WE UPHOLD THE SAME. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE AO FOLLOWING THE DECISION OF THE ITAT AND, ACCORDINGLY, WE UPHOLD THE ORDER OF THE C IT(A) AND DISMISS THE GROUND RAISED BY THE REVENUE IN ITS APPEAL. 12. AS REGARDS THE ISSUE REGARDING ALP ADJUSTMENT BY TPO, RAISED BY THE ASSESSEE IN ITS APPEAL (3-10 GROUNDS OF APPE AL), IT IS OBSERVED THAT THE ASSESSEE MADE CERTAIN INTERNATIONAL TRANSA CTIONS PERTAINING TO BPO SERVICES TO ITS AES VIZ., MONSTER WORLDWISE INC., USA, MONSTER WORLDWIDE LTD., UK AND MONSTER SG PTE LTD., SINGAPORE. THE AO REFERRED THE MATTER TO TPO VIDE LETTER DATED 23/ 11/2009 TO DETERMINE ARMS LENGTH PRICE (ALP). TPO VIDE HIS OR DER U/S 92CA(3) OF THE ACT DATED 29/10/2010 DETERMINED THE ALP OF T HE INTERNATIONAL TRANSACTIONS AT RS. 14,45,74,324/- AS AGAINST RS. 9 ,86,40,527/- ADOPTED BY THE ASSESSEE. THUS, THE DIFFERENCE OF RS . 4,59,33,797/- IS THE ADJUSTMENT MADE U/S 92CA OF THE ACT. 13. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED BEFORE THE C IT(A) THAT ASSESSEE HAS ENTERED INTO BPO SERVICES WITH ITS AES FOR THE FIRST TIME DURING THIS YEAR AND ONE TIME DATA CLEANING SERVICE S AS DETAILED BELOW: TELECALLING MONSTER WORLDWIDE, USA 7,21,39,173 MONSTER WORLDWIDE, U.K. 50,77,468 MONSTER WORLDWIDE, SINGAPORE 79,59,335 8,51,75,976 DATA CLEANING MONSTER WORLDWIDE, U.K. 1,34,64,550 9,86,40,526 7 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. IN THE ABOVE TRANSACTIONS, ASSESSEE HAS ADOPTED 15% MARK UP ON THE COST RELATING TO BPO SERVICES AND FOR DATA CLEANING CHARGES. IT HAS CHARGED FEE OF RS. 18,000/- PER MONTH + $ 2 DOLLARS EACH FOR RECORDS PROCESSED. IT HAS EARNED HUGE MARGIN OF 63.8% ON SU CH DATA CLEANING SERVICES. THE ABSTRACT OF THE REVENUE IS GIVEN BELO W: US UK SINGAPORE TOTAL TELE-CALLING ACTIVITY TURNOVER (A) 72,139,173 5,077,468 7,959,335 85,175,976 TOTAL COST 62,729,716 4,415,190 6,921,161 74,066,067 15% MARK UP 9,409,457 662,278 1,038,174 11,109,910 DATA CLEANING ACTIVITY TURNOVER (B) - 13,464,550 - 13,464,550 TOTAL COST - 4,868,943 - 4,868,943 MARGIN - 8,595,607 - 8,595,607 TOTAL (A+B) 98,640,526 13.1 FOR THE PURPOSE OF TP REGULATIONS, THE ASSESSE E ADOPTED THE COST + 15% MARK UP AS ALP IN RESPECT OF BPO SERVICE S. IN RESPECT OF DATA CLEANING SERVICES, AS THE TRANSACTIONS WERE ON E TIME AND THE MARGIN WORKED OUT AT 63.8% ON THE TURNOVER AND AT R S. 176.5% ON COST, THE ASSESSEE DID NOT WORK OUT ANY COMPARABLES . 13.2 THE ASSESSEE SUBMITTED THAT TPO HAS ADOPTED MA RK UP OF 36.41% AND SUBSEQUENTLY, AFTER CONSIDERING THE OBJE CTIONS OF ASSESSEE, TPO HAS REDUCED THE MARK UP TO 30.21%. AS SESSEE FURTHER SUBMITTED THAT TPO HAS INCREASED THE OPERATING COST OF INTERNATIONAL TRANSACTIONS TO RS. 11,10,31,660/- AS AGAINST THE C OST OF RS. 7,89,354,010/- AS DECLARED BY THE ASSESSEE . ON THE OPERATING COST OF RS. 11,10,31,660/-, THE TPO HAS ADOPTED THE ALP MAR GIN OF 30.21% AND DETERMINED THE ALP AT RS. 14,45,74,324/-. ACCOR DINGLY, DETERMINED THE ALP ADJUSTMENT OF RS. 4,59,33,797/-. 8 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 13.3 ASSESSEE SUBMITTED THAT TPO HAS COMMITTED A MI STAKE BY INCREASING THE COST INCURRED BY THE ASSESSEE IN INT ERNATIONAL TRANSACTIONS, TPO TREATED THE ENTIRE COST OF BUSINE SS OF THE ASSESSEE AS ONE INVOLVED IN INTERNATIONAL TRANSACTIONS, COMP UTED PERCENTAGE OF LOSS ON OVERALL BASIS AND COMPUTED THE COST BY APPL YING THAT PERCENTAGE TO THE INTERNATIONAL TURNOVER SHOWN. 13.4 AS REGARDS THE OTHER ISSUE RELATES TO THE PERC ENTAGE OF MARK UP RECOMMENDED BY THE TPO, THE ASSESSEE SUBMITTED THA T THE ACTIVITY CARRIED OUT IN BPO IS A NON-TECHNICAL ACTIVITIES CA RRIED OUT BY UNDER- GRADUATES AND GRADUATES. THE ASSESSEE IN ITS TP ANA LYSIS HAS RELIED ON THE COMPARATIVE CASES. THE ASSESSEE HAD A MARGIN OF 15% AND IT WAS SUBSTANTIATED BY COMPARATIVE CASES REFERRED TO IN TP DOCUMENTATION. WHEREAS THE TPO RECOMMENDED A MARK U P OF 30.21% AS AGAINST 15% ADOPTED BY THE ASSESSEE. THE TPO TRE ATED THE ASSESSEE AS A COMPANY CARRYING ON THE BUSINESS OF SOFTWARE DEVELOPMENT AND BASICALLY AN EXPORT ORIENTED UNIT. ASSESSEE SUBMITTED THAT THE TPO FAILED TO APPRECIATE THAT TH E ASSESSEE IS MAINLY A DOMESTIC COMPANY WHICH CARRIED ON THE INTE RNATIONAL TRANSACTIONS IN A VERY MINOR SCALE. THE FIGURES GIV EN BELOW WILL SUBSTANTIATE ITS POSITION: A) DOMESTIC TURNOVER FROM THE MAIN ACTIVITY OF DATA BANK MAINTENANCE RS. 77,47 ,93,696 B) INTEREST INCOME RS. 17,92,175 C) OTHER INCOME RS. 7,83,4 31 RS. 77,73,69,302 INCOME FROM BPO OPERATIONS RS. 9,86,40,52 6 TOTAL RS. 87,60,09,828 ============ 13.5 ASSESSEE FURTHER SUBMITTED THAT SOME OF THE FA CTS AND OBSERVATIONS OF THE TPO ARE MOSTLY RELATED TO SOME OTHER COMPANY AND, THEREFORE, THE FINDING REACHED BY THE TPO DO N OT APPLY TO THE CASE OF THE ASSESSEE. 9 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 14. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) OBSERVED AS UNDER: 1. THE TURNOVER OF TELE CALLING ACTIVITIES IS RS. 8 ,51,75,976/-. THE TURNOVER OF DATA CLEANING ACTIVITY IS RS. 1,34,64,5 50/- BRINGING THE TOTAL TURNOVER FORM INTERNATIONAL TRANSACTIONS TO RS. 9,86,40,526/-. WITH RESPECT TO THE FORMER, THE APPE LLANT STATED THAT THE ONLY COST INCURRED WERE EMPLOYEE COSTS AND DEPRECIATION ON COMPUTERS AND HEAD PHONES PROVIDED TO THE EMPLOY EES. ON THESE COSTS, A 15% MARK UP WAS MADE. ON THE OTHER H AND, WITH RESPECT TO DATA CLEANING ACTIVITIES, THE AMOUNT CHA RGED BY THE APPELLANT WAS RS. 18,000I- PER MONTH PER PERSON PLU S $2 FOR RECORDS PROCESSED. THEREFORE, THE BILLING AMOUNT WO RKED OUT TO RS. 1,34,64,550/-. 2. IT IS IMPORTANT TO NOTE THAT THE APPELLANT HAS NOT PROVIDED ANY DETAILS OF THE AMOUNT BILLED WITH RESPECT TO THE BP O TELE CALLING SERVICES. SIGNIFICANTLY, IT IS TO BE NOTED THAT THE APPELLANT HAS NOT ADDED ALL THE COSTS. THERE ARE COSTS INVOLVED IN MA INTAINING OFFICE, ELECTRICITY AND HOST OF OTHER THINGS CONNEC TED TO A PARTICULAR ACTIVITY. EACH OF THESE COSTS RELATING T O INTERNATIONAL TRANSACTION HAS TO BE APPORTIONED TO THAT ACTIVITY. IT IS INCORRECT TO SAY THAT ONLY EMPLOYEE SALARIES AND DEPRECATION ON COMPUTERS AND HEAD PHONES WOULD BE ENOUGH TO ACCOUNT FOR ALL THE COSTS RELATING TO BPO SERVICES. THE OPERATING COSTS HAVE NOT BEEN DETERMINED CORRECTLY BY THE APPELLANT. 3. THE TRANSFER PRICING OFFICER POINTED OUT THAT TH E APPELLANT HAS WRONGLY PICKED 20 SUITABLE COMPANIES ONLY TO JUSTIF Y ITS MARKUP. THE TRANSFER PRICING OFFICER HAS RIGHTLY POINTED OU T THAT NO FILTERS HAVE BEEN APPLIED BY THE APPELLANT AND THAT THE RES ULTS OF COMPANIES SO CHOSEN ARE NOT REALLY INCREDIBLE. 4. THE TRANSFER PRICING OFFICER HAS RIGHTLY STATED THAT THE APPELLANT IS MAINLY IN IT ENABLED SERVICES. HOWEVER , HE HAS COMPARED THE RESULTS OF THE INTERNATIONAL TRANSACTI ONS OF THE APPELLANT IN PART WITH SOME SOFTWARE DEVELOPING COM PANIES. THE APPELLANT HAS NOT DEVELOPED ANY SOFTWARE. 5. THE APPELLANT HAS POINTED OUT THAT SOME OF THE F ACTS MENTIONED BY THE TRANSFER PRICING OFFICER ACTUALLY RELATE TO SOME OTHER COMPANIES AND ARE NOT REALLY RELEVANT. THIS O BSERVATION IS PARTLY CORRECT. HOWEVER, I FIND THAT THE FILTERS AP PLIED BY THE TRANSFER PRICING OFFICER ARE AS FOLLOWS: COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FY 20 06-07 WERE EXCLUDED. COMPANIES WHOSE IT ENABLED SERVICE REVENUE PROVISION OF BPO SERVICES RS. 9,86,40,527/- FROM THE ABOVE DATA, I FIND THAT THE INTERNATIONAL TRANSACTIONS COMPARED TO THE OPERATING REVENUE ARE 11.29%. THERE FORE, THE FILTER WITH REGARD TO 25% OPERATING REVENUE IS INCO RRECT BECAUSE, THIS FILTER EXCLUDED COMPARABLE COMPANIES. THEREFOR E, THE TPO SHOULD HAVE EXCLUDED THOSE COMPANIES WHO HAD MORE T HAN 25% OF THE OPERATING REVENUE AS EXPORT SALES AND NOT VI CE VERSA. 8. WITH REGARD TO THE 13 COMPARABLE COMPANIES, I FI ND THAT A NUMBER OF THEM ARE NOT COMPARABLE TO THE APPELLANT. FOR EXAMPLE, ACCENTIA TECHNOLOGIES LTD (SEG) IS 100% EX PORT ORIENTED AS ARE APEX KNOWLEDGE SOLUTIONS LIMITED, B ODHTREE CONSULTING LTD (SEG), DATAMATICS FINANCIAL SERVICES LIMITED, ETC. A LOOK AT THE CHART ON PAGE 56 OF THE ORDER OF THE TPO SHOWS THAT ALL THE COMPANIES ARE NOT COMPARABLE IN RESPECT TO EXPORT EARNINGS OVER SALES RATIO WITH THE APPELLANT BECAUS E THE APPELLANT'S RATIO IS ONLY 11.29%. MOREOVER, A NUMBE R OF THESE COMPANIES ARE INTO SOFTWARE DEVELOPMENT. SERVICES I NCLUDE ENGINEERING SERVICES, PLANT DESIGN, CIVIL AND INDUS TRIAL ELECTRONICS AND PROCESS, ETC. THESE SERVICES HAVE NOTHING TO DO WITH TELE MARKING AND DATA CLEANING SERVICES WHICH WERE PROVI DED BY THE APPELLANT. 9. THE MOST IMPORTANT FILTER WHICH THE TPO DID NOT APPLY PERTAINED TO THE SPECIFIC SERVICES UNDERTAKEN BY TH E APPELLANT I.E., TELE MARKETING, TELE BPO SERVICES. 10. AS ANOTHER EXAMPLE, BODHTREE CONSULTING LIMITED , ONE OF THE COMPARABLE COMPANIES, SELECTED DOES BUSINESS RELATI NG TO EPAPER PROCESSING, OFFSHORE PROJECTS, EPAPER SOLUTI ONS. ONLY ONE PORTION OF ITS ACTIVITIES RELATE TO DATA CLEANSING SERVICES FOR WHICH ANYWAY THE APPELLANT HAS SHOWN MUCH HIGHER MARGINS. 13 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. OTHERWISE, ITS SERVICES DO NOT RELATE TO THE SERVIC ES OF THE APPELLANT. 11. AS YET ANOTHER EXAMPLE, APEX KNOWLEDGE SOLUTION S PVT. LTD. IS INTO GIS AND ENGINEERING SERVICES AND NOT INTO S ERVICES OFFERED BY THE APPELLANT 5.3 FROM THE ABOVE DISCUSSIONS, I FIND THAT WHEREAS IT IS CORRECT TO SAY THAT THE APPELLANT HAS NOT TAKEN ALL EXPENSE S INTO ACCOUNT AND HAS ARTIFICIALLY SHOWN 15% MARKUP ON SELECTED COST. ON THE OTHER HAND, THE TRANSFER PRICING OFFICER HAS APPLI ED INCORRECT FILTERS AND HAS COMPARED THE APPELLANT'S RESULTS WI TH THOSE OF PRIMARILY INCOMPARABLE COMPANIES. THEREFORE, I FIND THAT THE CALCULATION WITH RESPECT TO ACTUAL OPERATING COSTS CALCULATED BY THE TPO AT RS. 11,10,31,660/- ARE CORRECTLY CALCULA TED BECAUSE SUCH COSTS WITH RESPECT TO IT ENABLED SERVICES FOR EXPORTS ARE NOT VERY DIFFERENT FROM THOSE OF THE APPELLANT. THESE C OSTS HAVE ALSO NOT TAKEN INTO ACCOUNT ANY WORKING CAPITAL ADJUSTME NTS AS THE APPELLANT HAS STATED THAT SUCH AN ADJUSTMENT IS NOT REQUIRED. ON THE OTHER HAND, THE MARGIN OF 30.21% IS NOT CORRECT . I HOLD THAT THE MARGIN OF 15% OF COSTS AS TAKEN BY THE APPELLAN T WOULD BE THE CORRECT MARGIN. THE COST WOULD BE RS. 11,10,31, 660/- AS ALREADY STATED AND THE ARM'S LENGTH PRICE WOULD WOR K OUT TO RS. 12,76,86,409/-. THE APPELLANT GETS RELIEF ACCORDING LY. 15. BEFORE US, THE LD. AR SUBMITTED THAT ASSESSEE I S FOLLOWING COST PLUS METHOD OF ALP I.E. COST + 15% MARK UP IN RESPE CT OF TELE CALLING SERVICES (BPO). HE SUBMITTED THAT THE TPO HAS DISTU RBED THE COST STRUCTURE RELATING TO ALP ADJUSTMENT BY TREATING TH E COST OF WHOLE BUSINESS OVERLOOKING THE COST INVOLVED IN INTERNATI ONAL TRANSACTIONS. TO SUPPORT HIS VIEW, HE SUBMITTED DETAILS OF OUTSOU RCING BILLING RAISED BY THE ASSESSEE TO ITS AES, WHICH IS PART OF THE PA PER BOOK AT PAGES 7 TO 141 AND 159 OF THE PAPER BOOK. TO SUPPORT HIS CL AIM, THE ASSESSEE FILED ADDITIONAL EVIDENCE IN RELATION TO DETAILS OF COST BEFORE US, WHICH IS PART OF THE PAPER BOOK. HE SUBMITTED THAT THE SA ME INFORMATION IS SUBMITTED BEFORE US, WHAT WAS SUBMITTED BEFORE THE CIT(A), WHICH IS PART OF PAPER BOOK. 16. LD. DR SUBMITTED THAT TPO HAS ADOPTED TNMM METH OD REJECTING THE COST PLUS METHOD ADOPTED BY THE ASSES SEE. HOWEVER, HE AGREED WITH THE OBSERVATION OF CIT(A) THAT SOME OF THE FILTERS ADOPTED BY THE TPO ARE INCORRECT AND SOME OF THE DATAS RELA TING TO SOME OTHER 14 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. ASSESSEE ARE ADOPTED BY THE TPO. HE ALSO SUBMITTED THAT THE MATTER CAN BE REMITTED BACK TO THE FILE OF THE TPO FOR FRE SH CONSIDERATION. 17. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. AS NOTED FROM THE ORDER OF TPO, THE TOTA L COST OF THE ASSESSEE ADOPTED BY THE TPO IS NOT CORRECT AS HE SH OULD HAVE ADOPTED THE COST WHAT IS RELEVANT FOR THE INTERNATI ONAL TRANSACTIONS. AS OBSERVED BY THE CIT(A), THE COST ADOPTED BY THE ASSESSEE ARE ONLY RELATING TO MAN POWER AND DEPRECIATION RELATING TO COMPUTER, MAY NOT BE SUFFICIENT, THERE MAY BE OTHER COST ASSOCIATED T O THE INTERNATIONAL TRANSACTIONS LIKE ADMINISTRATION, MANAGEMENT RESOUR CES ETC. TO SUBSTANTIATE THE COST ALLOCATION METHOD ADOPTED BY THE ASSESSEE, ASSESSEE HAS FILED ADDITIONAL EVIDENCE BEFORE US, W HICH REQUIRES VERIFICATION. AT THE SAME TIME, SOME OF THE FILTER S ADOPTED BY THE TPO, AS HIGHLIGHTED BY CIT(A), ARE NOT PROPER AND S OME OF THE COMPARABLES CONSIDERED BY THE TPO ARE NOT RELEVANT TO THE ASSESSEE. CONSIDERING THE ABOVE FACTUAL ERRORS, WE REMIT THE ISSUE BACK TO THE FILE OF THE TPO FOR DE-NOVO CONSIDERATION. WE DIREC T THE TPO TO RE-DO THE ASSESSMENT AFTER GIVING PROPER OPPORTUNITY TO T HE ASSESSEE IN THIS REGARD. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSE SSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AS FAR AS AY 2007-08 IS CONCERNED. ITA NO. 49/H/13 FOR AY 2008-09 BY THE REVENUE AND I TA NO. 69/H/13 FOR AY 2008-09 BY THE ASSESSEE . 19. AS REGARDS GROUND NOS. 2&3 RAISED BY THE REVENU E REGARDING ACCRUED INCOME SHOWN AS UNMATURED ADVANCES AMOUNTIN G TO RS. 16,96,48,620/-, SIMILAR ISSUE HAS BEEN DECIDED BY U S IN AY 2007-08 IN REVENUES APPEAL. AS THE ISSUE IS MATERIALLY IDENTI CAL TO THAT OF AY 2007-08, WE UPHOLD THE ORDER OF THE CIT(A) IN DELET ING THE SAID ADDITION AND ACCORDINGLY, DISMISS THE GROUNDS RAISE D BY THE REVENUE. 15 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 20. AS REGARDS THE GROUND NOS. 1 TO 3( A TO J) RAIS ED BY THE ASSESSEE REGARDING THE ADDITION OF RS. 7,25,22,986/ - IN RESPECT OF INTERNATIONAL TRANSACTIONS, IN THE PREVIOUS YEAR RE LEVANT TO THE ASSESSMENT YEAR, THE ASSESSEE-COMPANY MADE CERTAIN INTERNATIONAL TRANSACTIONS PERTAINING TO BPO SERVICES TO ASSOCIAT ED ENTERPRISES VIZ. MONSTER WORLDWIDE INC., USA MONSTER WORLDWIDE LTD., UK AND MONSTER SG PTE LTD., SINGAPORE. HENCE, AO THROUGH L ETTER DT.30.7.2010, A REFERENCE HAS BEEN MADE TO THE TRA NSFER PRICING OFFICER FOR DETERMINATION OF ARM'S LENGTH PRICE. TH E TRANSFER PRICING OFFICER VIDE HIS ORDER U/S.92CA(3) OF THE INCOME TA X ACT DT 28.10.2011, DETERMINED THE SHORT FALL OF ARMS LENGT H PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO THE AB OVE TRANSACTIONS AT RS.7,25,22,986/- WHICH IS ADJUSTED U/S. 92CA OF THE ACT AND THE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE O RDER OF TRANSFER PRICING OFFICER DT.28.10.2011 IS TREATED AS PART OF THIS ORDER. 21. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A), THE CIT(A) AFTER ANALYZING THE ISSUE ELABORATELY, CONFI RMED THE ADDITION MADE BY THE AO. 22. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. 23. THE LD. AR SUBMITTED THAT THE TPO WHILE ADOPTIN G THE OPERATING COST FOR ALP ADOPTED RS. 154,90,03,563/- AND EXCLUD ED THE SALES WITH UNRELATED PARTIES OF RS. 14,29,09,863/- AND DETERMI NED THE SALES WITH RELATED PARTIES, WHICH IS FACTUALLY INCORRECT. THE ACTUAL SALES WITH RELATED PARTIES I.E. BPO SERVICES ARE RS. 14.29 CRO RES AND ARRIVED AT THE ALP ADJUSTMENT OF RS. 7,25,22,986/-, WHICH IS 5 0% OF ACTUAL INTERNATIONAL TRANSACTIONS. FURTHER THE LD. AR SUBM ITTED THAT THE METHOD ADOPTED BY THE TPO TO ARRIVE AT THE ALP IN R ELATION TO OPERATING COST IS INCORRECT. 16 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 24. LD. DR ACCEPTED THE MISTAKES IN THE TPO ORDER I N RELATION TO ARRIVING OF ALP ADJUSTMENTS. 25. CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE MATERIAL FACTS ON RECORD. THE METHOD ADOPTED BY THE TPO TO ARRIVE AT THE OPERATING COST TO DETERMINE THE ALP IS FACTUALLY INCORRECT. H E HAS TREATED THE RELATED PARTY TRANSACTION AS UNRELATED PARTY TRANSA CTION AND TREATED TOTAL OPERATING COST OF THE BUSINESS AS INTERNATION AL TRANSACTIONS, WHICH IS FACTUALLY INCORRECT. WE ARE IN AGREEMENT W ITH THE SUBMISSIONS OF THE LD. AR. ACCORDINGLY, WE REMIT TH E ISSUE BACK TO THE FILE OF THE TPO TO DETERMINE ALP DE-NOVO AFTER PROV IDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND S RAISED BY THE ASSESSEE IN THIS REGARD ARE TREATED AS ALLOWED FOR STATISTICALLY PURPOSES. 26. AS REGARD THE GROUND NO. 4 RAISED BY THE ASSESS EE REGARDING THE ADDITION OF RS. 2,51,21,597/- AS INTEREST U/S 2 34B, IT IS OBSERVED THAT CHARGING INTEREST U/S 234B IS CONSEQUENTIAL IN NATURE, THEREFORE, INTEREST U/S 234B MAY BE COMPUTED ON THE FINAL TAXA BLE INCOME ARRIVED AT BY THE AO. 27. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN AY 2008-09 IS CONCERNED. ITA NO. 1333/H/14 FOR AY 2009-10 BY THE REVENUE AND ITA NO. 872/H/14 FOR AY 2009-10 BY THE ASSESSEE. 28. AS REGARDS GROUND NOS. 1&2 RAISED BY THE REVENU E REGARDING ACCRUED INCOME SHOWN AS UNMATURED ADVANCES AMOUNTIN G TO RS. 60,26,51,868/-, SIMILAR ISSUE HAS BEEN DECIDED BY US IN AY 2007-08 IN REVENUES APPEAL. AS THE ISSUE IS MATERIALLY IDENTI CAL TO THAT OF AY 2007-08, WE UPHOLD THE ORDER OF THE CIT(A) IN DELET ING THE SAID ADDITION AND DISMISS THE GROUNDS RAISED BY THE REVE NUE. 17 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 29. AS REGARDS THE GROUND NOS. 1 TO 3 ( A TO G) PER TAINING TO TRANSFER PRICING ADJUSTMENT OF RS. 85,79,248/- U/S 92CA OF T HE ACT, BY THE ASSESSEE, IT IS OBSERVED THAT AS PER 3CEB REPORT, THE INTERNA TIONAL TRANSACTIONS REFLECTED ARE AS UNDER: AE NATURE OF TRANSACTION AMOUNT (RS.) MONSTER WORLDWIDE INC., PROVISIONS OF BPO SERVICES 8,67,01,622 MONSTER SG PTE LTD., SINGAPORE -DO- 1,36,76,045 MONSTER TECHNOLOGIES MALAYSIA SDS BHD. -DO- 42,71,726 MONSTER WORLDWIDE CANADA COMMISSION RECEIVED 89,374 MONSTER SG PTE LTD., SINGAPORE -DO- 9,28,485 MONSTER WORLDWIDE LTD., UK -DO- 29,84,778 MONSTER.COM HK LTD. -DO- 3,63,603 E-CAREER Z(BEIJING) LTD. -DO- 33,052 JOB KOREA CO. LTD. -DO- 3,416 MONSTER JOBS MEXICO S.DE R.L.DE.CV -DO- 28,523 MONSTER TECHNOLOGIES MALAYSIA SDN BHD -DO- 70,015 MONSTER WORLDWIDE C.Z.S.R.O. -DO- 46,464 MONSTER.COM WORLDWIDE INC. -DO- 23,863 MONSTER WORLDWIDE LTD., UK COMMISSION PAID 16,51,310 MONSTER WORLDWIDE INC., USA -DO- 1,11,61,814 MONSTER WORLDWIDE CANADA -DO- 63,830 MONSTER SG PTE LTD., SINGAPORE -DO- 2,23,188 MONSTER BELGIUM NV -DO- 3,420 MONSTER MALAYSIA SDN BHD -DO- 14,188 MONSTER.COM HK LTD. -DO- 69,049 MONSTER TECHNOLOGIES MALAYSIA SDN BHD REIMBURSEMENT BY AE 21,72,329 MONSTER SG PTE LTD., SINGAPORE -DO- 44,08,797 MONSTER.COM HK LTD. -DO- 7,73,605 MONSTER WORLDWIDE INC., REIMBURSEMENT TO AE 5,49,23,576 18,46,86,072 18 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 29.1 AFTER EXAMINING THE TP STUDY SUBMITTED BY THE ASSESSEE, THE TPO OBSERVED THAT THE ASSESSEE HAS NOT CARRIED OUT THE ECONOMIC ANALYSIS, HOWEVER, HE SUMMARIZED IT AS UNDER: NATURE OF TRANSACTION AMOUNT (RS.) PROVISION OF BPO SERVICES 10,46,49,393 COMMISSION RECEIVED 45,71,573 COMMISSION PAID 1,31,86,799 REIMBURSEMENT BY AE 73,54,731 REIMBURSEMENT TO AE 5,49,23,576 SR. NO. NATURE OF INTERNATIONAL TRANSACTION MAM PLI MARGIN OF TAXPAYER MARGIN OF COMPARABLES 1 PROVISION OF BPO SERVICES CPM NA 15% NA 2 COMMISSION RECEIVED RPC NA 10% NA 3 COMMISSION PAID RPM NA 10% NA 4 REIMBURSEMENT BY AE NA NA NA NA 5 REIMBURSEMENT TO AE NA NA NA NA 29.2 THE TPO HAS OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED TP DOCUMENT NOR ANY OTHER DOCUMENT TO SUBSTANTIATE ITS CLAIM OF MAM. IT HAS THUS NOT SUBSTANTIATED THE TRANSACTIONS BY BENC H MARKING THEM. IT IS FURTHER STATED IN THE ANNEXURE D OF FORM 3CEB TH AT IT HAS SECURED LOAN FROM ITS AE WITH AN ARRANGEMENT OF INTEREST RA TE OF 200 BASIS POINTS OVER THE QUARTERLY LIBOR RATE. HOWEVER, DURI NG THE YEAR NO INTEREST HAS BEEN PAID/PAYABLE BY THE ASSESSEE. 29.3 AS PER THE AUDITED STATEMENT OF ACCOUNTS, THE FINANCIALS OF THE ASSESSEE ARE AS UNDER: DESCRIPTION AMOUNT (RS.) OPERATING REVENUE 1,40,63,73,614 OPERATING COST 1,19,67,96,659 OPERATING PROFIT 20,95,76,955 OP/OR (%) 14.90 19 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. OP/OC (%) 17.51 29.4 ON GOING THROUGH THE TP DOCUMENT, THE TP OBSER VED THAT THE METHOD OF THE SEARCH PROCESS SUFFERS FROM DEFECTS W HICH RESULTED IN SELECTION OF INAPPROPRIATE COMPARABLES AND REJECTIO N OF COMPANIES THAT ARE APPROPRIATE COMPARABLES. A DETAILED SHOW C AUSE NOTICE WAS ISSUED TO THE ASSESSEE AND ITS RESPONSE WAS SOLICIT ED. THE ASSESSEE HAS FILED ITS REPLY ON 01/11/2012 AND 05/12/2012. 29.5 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE, THE TPO HAS ARRIVED THE ARMS LENGTH MARGIN AT 24.67% AND THE ARMS LENGTH PRICE ON PROVISIONS OF ITES WAS DETERMINED AT RS. 11,34,4 9,059/- AND A SUM OF RS. 85,79,248/- WAS TREATED AS ADJUSTMENT U/ S 92C(3) OF THE ACT, BY WHICH THE INCOME WAS ENHANCED. 30. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A), THE CIT(A) FOLLOWING HIS DECISION IN AY 2008-09, CONFIR MED THE TP ADJUSTMENT MADE BY THE AO/TPO. 31. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. 32. IN ADDITION TO THE REGULAR GROUNDS OF APPEAL, T HE ASSESSEE HAS RAISED ADDITIONAL GROUNDS, WHICH ARE AS UNDER: 1. THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN ADOPT ING, AS COMPARABLES, THE FOLLOWING COMPANIES 1) ACCENTIA TECHNOLOGIES LTD., 2) ACRO PETAL TECHNOLOGIES LTD., 3) COSMIC GLOBAL LTD., 4) ECLERX SERVICES LTD., 5) GENESIS IN TERNATIONAL LTD., AND 6) INFOSYMS BPO LTD., 2. THE LOWER AUTHORITIES SHOULD HAVE SEEN THAT THES E COMPANIES WERE HELD BY THE ITAT TO BE AS NOT COMPARABLES IN T HEIR ORDER, IN CASES SIMILAR TO OR SUPERIOR TO THE ASSESSEE COM PANY. 33. FOR DETERMINATION OF ARMS LENGTH PRICE, THE TP O HAS SELECTED THE FOLLOWING COMPANIES AS COMPARABLES: S.NO. COMPANY NAME PBIT/COST (%) 1. ACCENTIA TECH 49.40 20 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 2. ACROPETAL TECHNOLOGIES LTD. (SEG.) 25.01 3. ADITYA BIRLAMINACS WORLDWIDE LTD., 0.53 4. COSMIC GLOBAL LTD. 48.20 5. CROSSDOMAIN 29.38 6. ECLERX SERVICES LTD. 53.34 7. INFOSYS BPO LTD. 16.90 8. JEEVAN SCIENTIFIC/SOFTECH TECHNOLOGY LTD. 16.56 9. MICROLAND LTD. 2.35 10. MICROGENETIC SYSTEMS LTD. 10.11 11. R SYSTEMS INTERNATIONAL LTD. (SEG.) 5.77 12. GENESYS INTERNATIONAL LTD. 71.50 ARITHMETIC MEAN 27.42 34. THE LD. AR OF THE ASSESSEE HAS OBJECTED TO 6 CO MPANIES AS COMPARABLES OUT OF THE SAID COMPANIES SELECTED BY T HE TPO, WHICH WERE REJECTED BY THE COORDINATE BENCH OF THIS TRIBU NAL IN THE FOLLOWING CASES: 1. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., IN ITA NO. 247/HYD/14, ORDER DATED 18/02/2015 FOR AY 2009-10. 2. M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., HYD. IN ITA NO. 124/HYD/2014 FOR AY 2009-10, ORDER DATED 31 /07/2014. 3. M/S BERKADIA SERVICES INDIA PVT. LTD., HYDERABAD IN ITA NO. 1802/HYD/13, ORDER DATED 19/09/2014 FOR AY 2009 -10. 35. THE LD. DR RELIED ON THE ORDERS OF REVENUE AUTH ORITIES. 36. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. AS SUBMITTED BY THE LD. AR OF THE ASSESS EE, THE SIX COMPARABLES OBJECTED BY THE ASSESSEE, HAVE BEEN EXC LUDED BY THE COORDINATE BENCHES OF THIS TRIBUNAL IN THE AFORESAI D CASES. FOR THE SAKE OF CLARITY, WE EXTRACT THE FINDINGS OF THE COO RDINATE BENCH IN THE CASE OF M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., (SUPRA) AS UNDER: 15. WE HAVE CONSIDERED THE CONTENTIONS OF THE PART IES AND EXAMINED THE DOCUMENTS AND PAPER-BOOKS PLACED ON RECORD. CORRECTNESS OF IN CLUSION/EXCLUSION OF THE ABOVE COMPANIES IS DECIDED HEREUNDER CASE BY CASE. 21 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. (1) INFOSYS B P O LTD. : 16. IT WAS THE CONTENTION OF ASSESSEE THAT THIS BPO IS A GIANT IN ITS AREA AND HAS BRAND VALUE OF INFOSYS TECHNOLOGIES LIMITED. ASSESSEES M AIN CONTENTION WAS THAT IT IS NOT FUNCTIONALLY SIMILAR AND ITS TURNOVER IS MUCH MORE WHEN COMPARED TO THAT OF ASSESSEE. IT WAS ALSO CONTENDED THAT THE INFOSYS BPO HAS DONE BRAND BUILDING EXERCISE BY INCURRING LARGE AMOUNTS OF BRAND BUILDING AND ADVER TISEMENT EXPENDITURE AND UNDERTAKING BRAND CAMPAIGNING OUTSIDE INDIA. FURTHE R, IT ALSO HAS HUGE ASSET BASE AND THEREFORE, THIS COMPANY IS NOT FUNCTIONALLY COMPARA BLE TO ASSESSEE. ASSESSEE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. AGNITY INDIA TECHNOLOGIES PVT. LTD. (2013) 219 TAXMAN 26 (DEL), WHEREIN IT WAS HELD THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLE TO SMALLER COMPANIES LIKE ASSESSEE. 16.1 EVEN THOUGH WE ARE NOT IN AGREEMENT WITH THE C ONTENTIONS OF THE COMPARABILITY ON TURNOVER RATIO OF ASSESSEE WITH THIS COMPANY ON THE GROUND THAT ASSESSEES TURNOVER IS ABOUT RS.129.8 CRORES, WHICH AS AGAINST TURNOVER OF RS.1016 CRORES OF THE INFOSYS, ( WHICH IS ONLY ABOUT 5 TIMES) WE ARE OF THE VIEW THA T OTHER CONTENTIONS WITH REGARD TO THE BRAND VALUE AND BRAND BUILDING EXERCISE, HAVING HUGE ASSET BASE, CAN BE CONSIDERED TO ARRIVE AT THE CONCLUSION THAT INFOSYS IS FUNCTIO NALLY NOT SIMILAR TO THAT OF ASSESSEE. INFOSYS BPO STANDS ON ITS OWN AS AN EXCLUSIVE BPO O F THE INFOSYS TECHNOLOGIES AND IN EARLIER YEARS, GENERALLY INFOSYS BPO IS EXCLUDED IN MANY OF THE CASES. CONSIDERING THESE ASPECTS, WE ARE OF THE OPINION THAT EVEN THOUGH THE PROFITS OF THE INFOSYS BPO LTD. IS REASONABLE AND NO SUPER PROFITS ARE EARNED, JUST BE CAUSE OF ITS BIG BRAND VALUE, THIS COMPANY HAS TO BE EXCLUDED ON THE GROUNDS OF FUNCTI ONAL DISSIMILARITY ON FAR ANALYSIS. THEREFORE, WE DIRECT THE ASSESSING OFFICER/TPO TO E XCLUDE THIS COMPANY. (2) GENESYS INTERNATIONAL LTD. 17. IT WAS THE CONTENTION THAT THIS COMPANY FUNCTIO NS IN TWO HORIZONTALS, AND IS HAVING SUPER PROFITS. IT WAS FURTHER SUBMITTED THAT THIS C OMPANY IS NOT ONLY IN SOFTWARE DEVELOPMENT BUT ALSO IN GEOSPATIAL SERVICES, WHICH ARE HIGHLY TECHNICAL. IT ALSO INVOLVES IN CONSULTING ACTIVITY. IT WAS THE CONTENTION THAT THIS COMPANY WAS ANALYSED BY THE COORDINATE BENCH OF THE TRIBUNAL AT DELHI IN THE CA SE OF M/S. MERCER CONSULTING (INDIA) LTD. V/S DCIT (VIDE ORDER DATED 6TH JUNE, 2014 IN I TA NO.966/DEL/2014), WHEREIN THIS COMPANY WAS EXCLUDED IN THAT CASE. LEARNED COUNSEL FOR ASSESSEE RELIED UPON THE FINDINGS OF THE TRIBUNAL VIDE PARAS 14.2 AND 14.3, IN THAT CASE, WHICH READ AS FOLLOWS- 14.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RIVAL MATERIALS ON RECORD. IT HAS BEEN NOTICED SUPRA THAT ASSESSEE IS BASICALLY P ROVIDING VARIOUS SERVICES TO THE CUSTOMERS OF ITS AES IN RELATION TO HUMAN RESOURCES WHICH ARE MORE OR LESS CENTERED AROUND THE EMPLOYEES OF THE PROSPECTIVE CLIENTS. WH EN WE CONSIDER THE NATURE OF SERVICES PROVIDED BY GENESYS INTERNATIONAL CORPORAT ION LTD., IT COMES TO THE FOREFRONT THAT THEY ARE PROVIDING FULL RANGE OF GEOSPATIAL SE RVICES TO ITS CUSTOMERS. IN SIMPLE TERMS, GEOSPATIAL SERVICES MEANS THE SERVICES RELAT ING TO THE RELATIVE POSITION OF THINGS ON THE EARTHS SURFACE. THESE BASICALLY INCLUDE 3D MAPPING, NAVIGATION MAPS, IMAGE PROCESSING, CADASTRAL MAPPING, ETC. IF WE TAKE INTO ACCOUNT THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE, BEING FINANCIAL AND RETIR EMENT SECURITY, HEALTH, PRODUCTIVITY OF EMPLOYEES AND EMPLOYMENT RELATIONSHIPS AND THEN TRY TO COMPARE THEM WITH THOSE RENDERED BY GENESYS, IT IS MANIFESTED THAT BOTH ARE TOTALLY INCOMPARABLE. 22 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 14.3. THE TPO ON PAGE 48 OF HIS ORDER HAS EXAMINED CBDT CIRCULAR SO 890 (E) DATED 26.9.2000 WHICH PROVIDES A DETAILED LIST OF PRODUCT S OR SERVICES THAT CAN BE COVERED UNDER THE ITES FOR THE PURPOSES OF SECTION 10A AND 10B OF THE ACT. IN THIS CIRCULAR, INFORMATION TECHNOLOGY ENABLED PRODUCTS/SERVICES HA VE BEEN DIVIDED INTO FIFTEEN CATEGORIES, STARTING WITH BANK OFFICE OPERATIONS, C ALL CENTRES ETC. AND ENDING WITH WEBSITE SERVICES. FROM THE VERY DESCRIPTION OF SUCH SERVICES, IT IS PALPABLE THAT EVEN THOUGH THESE FALL UNDER THE OVERALL ITES CATEGORY, BUT SOME OF THEM ARE QUITE DIFFERENT FROM EACH OTHER. TO CITE, SERVICE AT SL.NO. (VI) OF THIS CIRCULAR IS GEOGRAPHIC INFORMATION SYSTEM SERVICES AND AT SL. NO. (VII) IS HUMAN RESO URCES SERVICES. NO DOUBT, ALL THESE FIFTEEN CATEGORIES OF PRODUCTS/SERVICES HAVE BEEN I NCLUDED UNDER THE MAJOR HEAD OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES), B UT MOST OF THEM ARE QUITE DISTINGUISHABLE FROM OTHERS. IN OUR CONSIDERED OPIN ION, THE FIFTEEN BROAD CATEGORIES SET OUT IN THIS CIRCULAR CANNOT PER SE BE CLAIMED AS SI MILAR TO EACH OTHER. A CURSORY LOOK AT THESE PRODUCTS/SERVICES TRANSPIRES THAT SOME OF THE M ARE FUNCTIONALLY QUITE DIFFERENT FROM EACH OTHER. FURTHER THE LEVEL OF INVESTMENT RE QUIRED FOR PROVIDING SUCH SERVICES IS ALSO NOT CONSISTENT. IN OUR CONSIDERED OPINION, THE MERE FACT THAT TWO SERVICES ARE PLACED UNDER THIS CATEGORY DO NOT BECOME AUTOMATICA LLY COMPARABLE. IF A CASE PROVIDING ONE CATEGORY OF SERVICES UNDER ITES IS CL AIMED AS COMPARABLE WITH ANOTHER IN THE CATEGORY OF SERVICE UNDER ITES AS PER THIS CIRC ULAR, THEN IT MUST BE SHOWN EX FACIE THAT IT IS BROADLY SIMILAR. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE SERVICES RENDERED BY GENESYS FALL UNDER CLAUSE (VI) WITH THE HEADING GEOGRAPHICAL INFORMATION SYSTEMS SERVICES, WHEREAS THOSE RENDER ED BY THE ASSESSEE FALL PARTLY UNDER CLAUSE (VII) WITH THE HEADING HUMAN RESOURCES SERV ICES AND PARTLY UNDER CLAUSE (XI) WITH THE HEADING PAYROLL. ON JUXTAPOSITION EXAMIN ATION OF THESE TWO SETS OF SERVICES, WE FIND THAT THERE IS A VAST DIFFERENCE WHICH MAKE ONE QUITE DISTINCT FROM THE OTHER. IN VIEW OF SUCH FUNCTIONAL INCOMPARABILITY BETWEEN ASS ESSEE AND GENESYS, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE. WE, T HEREFORE, DIRECT TO EXCLUDE THIS CASE FROM THE LIST OF COMPARABLES. 17.1. ON CAREFUL CONSIDERATION OF THE MATTER, RESPE CTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH, WE ARE ALSO OF THE OPINION THAT THERE IS VAST DIFFERENCE BETWEEN THE FUNCTIONS OF THE ABOVE COMPANY AND THAT OF ASSESSEE. THIS COMPANY AS SUCH, CANNOT BE TREATED AS COMPARABLE ON FAR ANALYS IS. WE THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (3) ECLERX SERVICES LTD. 18. THE OBJECTION OF ASSESSEE TO THIS COMPARABLE IS THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR. IT IS IN THE BUSINESS OF CONSULTANCY AN D ADVISORY SERVICE AND PROVIDES ONLY ANALYTICAL DATA. IT IS ALSO INVOLVED IN QUALITY MON ITORING. IT IS THE STAND OF THE ASSESSEE THAT THIS COMPANY OFFERS SOLUTIONS THAT INCLUDE DAT A ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONCILIATION AND THEREFORE HAS TO BE C LASSIFIED AS HIGH END KPO. IN SUPPORT OF THE STAND OF THE ASSESSEE, EXTRACTS FROM THE ANN UAL REPORT OF THIS COMPANY HAVE BEEN POINTED OUT. THEREFORE, THE FUNCTIONS OF THE ABOVE COMPANY ARE DISSIMILAR TO ASSESSEE, WHICH IS A CAPTIVE SERVICE PROVIDER. ON THE PRINCIP LES LAID DOWN BY THE HONBLE SPECIAL BENCH OF THE ITAT (MUMBAI) IN THE CASE OF MAERSK GL OBAL CENTRES (INDIA) PVT. LTD. V/S. ACIT (ITA NO.7466/MUM/2012 FOR ASSESSMENT YEAR 2008 -09 DATED 7.3.2014) AND THE PRINCIPLES LAID DOWN BY THE COORDINATE BENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF M/S. MERCER CONSULTING (INDIA) PVT. LTD., (SUPRA), ASSES SEE SUBMITS THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. 23 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. 18.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEV ER, SUBMITTED THAT HAVING ACCEPTED ADITYA BIRLA MINACS WORLDWIDE LTD., AS A C OMPARABLE COMPANY, THIS COMPANY SHOULD ALSO BE INCLUDED, AS OTHERWISE, BOTH THE COM PANIES SHOULD BE EXCLUDED. 18.2 WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE ANNUAL REPORT AND THE OBJECTIONS OF ASSESSEE. AS SEEN FROM THE ANNUAL REPORT, THE AB OVE COMPANY IS INVOLVED IN DIVERSE NATURE OF SERVICES AND THERE WAS NO SEGMENTAL DATA FOR DIVERSIFIED SERVICE PORT FOLIO. MOREOVER THIS COMPANY CAN BE CONSIDERED AS KPO AND WE ARE OF THE OPINION THAT THIS COMPANY IS NOT COMPARABLE TO ASSESSEES SERVICES. W E THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (4) COSMIC GLOBAL LTD. 19. THE MAIN OBJECTION OF ASSESSEE WITH REFERENCE T O THE INCLUSION OF THIS COMPANY IS WITH REFERENCE TO OUTSOURCING OF ITS MAIN ACTIVITY. EVEN THOUGH THIS COMPANY IS IN ASSESSEES TP STUDY, IT HAS RAISED OBJECTION BEFORE THE TPO THAT THIS COMPANYS EMPLOYEE COST IS LESS THAN 21.30% AND MOST OF THE C OST IS WITH REFERENCE TO THE OUTSOURCING CHARGES OR TRANSLATION CHARGES, AND AS SUCH THIS IS NOT A COMPARABLE COMPANY. THE TPO, THOUGH CONSIDERED THESE SUBMISSIO NS, REJECTED THE SAME, ON THE REASON THAT THIS DOES NOT IMPACT THE PROFIT MARGIN OF THE COMPANY. OPPOSING THE VIEW TAKEN BY THE TPO, IT IS SUBMITTED THAT THIS COMPANY CANNOT BE SELECTED AS COMPARABLE, AS SIMILAR ISSUE WAS DISCUSSED BY THE COORDINATE BE NCH OF THE TRIBUNAL(DELHI) IN THE CASE OF MERCER CONSULTING (INDIA) P. LTD. (SUPRA), VIDE PARAS 13.2 TO 13.3 WHICH READ AS UNDER- 13.2. NOW COMING TO THE FACTUAL MATRIX OF THIS CAS E, WE FIND FROM THE MATERIAL ON RECORD THAT OUTSOURCING CHARGES OF THIS CASE CONSTI TUTE 57.31% OF THE TOTAL OPERATING COSTS. THIS DOES NOT APPEAR TO US TO BE A VALID REA SON FOR ELIMINATING THIS CASE FROM THE LIST OF COMPARABLES. ON GOING THROUGH THE ANNUAL AC COUNTS OF COSMIC GLOBAL LIMITED, A COPY OF WHICH HAS BEEN PLACED ON RECORD, WE FIND TH AT ITS TOTAL REVENUE FROM OPERATIONS ARE AT RS.7.37 CRORE DIVIDED INTO THREE SEGMENTS, N AMELY, MEDICAL TRANSCRIPTION AND CONSULTANCY SERVICES AT RS.9.90 LACS, TRANSLATION C HARGES AT RS.6.99 CRORE AND ACCOUNTS BPO AT RS.27.76 LAC. THE LD. AR HAS MADE OUT A CASE THAT OUTSOURCING ACTIVITY CARRIED OUT BY THIS COMPANY CONSTITUTES 57% OF TOTAL EXPENS ES. THE REASON FOR WHICH WE ARE NOT AGREEABLE WITH THE LD. AR IS THAT WE HAVE TO EXAMIN E THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO SEGMENT AND NOT ON THE ENTITY LEVEL, B EING ALSO FROM MEDICAL TRANSCRIPTION AND TRANSLATION CHARGES. WHEN WE ARE EXAMINING THE RESULTS OF THIS COMPANY FROM THE ACCOUNTS BPO SEGMENT ALONE, THERE IS NO NEED TO EXAMINE THE POSITION UNDER OTHER SEGMENTS. THE ENTIRE OUTSOURCI NG IS CONFINED TO TRANSLATION CHARGES PAID AT RS.3.00 CRORE, WHICH IS STRICTLY IN THE REALM OF THE TRANSLATION SEGMENT, REVENUES FROM WHICH ARE TO THE TUNE OF RS.6.99 CROR E. IF THIS SEGMENT OF TRANSLATION IS NOT UNDER CONSIDERATION FOR DECIDING AS TO WHETHER THIS CASE IS COMPARABLE OR NOT, WE CANNOT TAKE RECOURSE TO THE FIGURES WHICH ARE RELEV ANT FOR SEGMENTS OTHER THAN ACCOUNTS BPO. THUS IT IS HELD THAT THIS CASE CANNOT BE EXCLUDED ON THE STRENGTH OF OUTSOURCING ACTIVITY, WHICH IS ALIEN TO THE RELEVAN T SEGMENT. 13.3. HOWEVER, WE FIND THIS CASE TO INCOMPARABLE ON THE ALTERNATIVE ARGUMENT ADVANCED BY THE LD. AR TO THE EFFECT THAT TOTAL REV ENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LIMITED IS VERY LOW AT RS.27.76 LACS. WE HAVE DISCUSSED THIS ASPECT ABOVE IN THE CONTEXT OF CG-VAKS CASE AND HELD THAT A CAP TIVE UNIT CANNOT BE COMPARED WITH A GIANT CASE AND THUS EXCLUDED CG-VAK WITH TURNOVER F ROM ACCOUNTS BPO SEGMENT AT RS.86.10 LACS. AS THE SEGMENTAL REVENUE OF BPO SEGM ENT OF COSMIC GLOBAL LIMITED AT 24 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. RS.27.76 LAC IS STILL ON MUCH LOWER SIDE, THE REASO NS GIVEN ABOVE WOULD FULLY APPLY TO HOLD COSMIC GLOBAL LIMITED AS INCOMPARABLE. THIS CA SE IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN VIEW OF THE DETAILED ANALYSIS OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE REFERRED CASE, IN THIS CASE ALSO WE ACCEPT THE CONT ENTIONS OF ASSESSEE AND DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPARABLE FO R THE SAME REASONS. 5) ACROPETAL TECHNOLOGIES LTD. (SEG.) 20. THE OBJECTION OF ASSESSEE WITH REFERENCE TO THI S COMPANY IS THAT THE COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HIGH END SERVICES AND HAS PRODUCTS IN ITS INVENTORY. IT IS ALSO INVOLVED IN R&D ACTIVITY AND DEVELOPING SOPHISTICATED DELIVERY SYSTEM. IT WAS FURTHER SUBMITTED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE AT SEGMENT LEVEL ALSO, AS ENGINEERING DESIGN SERVICES ARE HIGH END SERVICES, AS CONSIDERED IN OTHER CASES. IT IS FURTHER SUBMITTED THAT ALLOCA TION OF EXPENSES BETWEEN SEGMENTS IS NOT POSSIBLE AND DEPRECIATION WAS NOT ALLOCATED BET WEEN THE SEGMENTS. THERE ARE EXTRA-ORDINARY EVENTS WHICH IMPACT PROFIT ALSO, AS CAN BE SEEN FROM THE ANNUAL REPORTS. IT IS FURTHER SUBMITTED THAT THIS COMPANY IS NOT SE LECTED IN THE LIST OF COMPARABLES SELECTED IN THE CASE OF MERCER CONSULTING (INDIA) P VT. LTD. AND THEREFORE, SELECTION OF THE COMPANY BY THE TPO IN THIS CASE, WHICH IS ALSO IN S IMILAR ITES SERVICES, IS NOT PROPER. 20.1 AFTER CONSIDERING THE RIVAL CONTENTIONS, WE A GREE WITH THE OBJECTIONS RAISED BY ASSESSEE. AS SEEN FROM THE ANNUAL REPORT, THIS COMP ANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HAS PRODUCTS ALSO, WHICH MAKES IT FUNCTIONALLY NOT COMPARABLE. EVEN AT THE SEGMENTAL LEVEL, IT PROVIDES ENGINEERING DES IGN SERVICES, WHICH WAS CONSIDERED AS HIGH END BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING (SUPRA) IN EARLIER YEAR. THEREFORE, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (6) ACCENTIA TECHNOLOGIES LIMITED. 21. THIS COMPANY WAS OBJECTED TO BY ASSESSEE ON THE REASON OF SUPER PROFITS AS WELL AS EXTRA-ORDINARY EVENTS. IT WAS SUBMITTED THAT ACQUIS ITION OF OAK TECHNOLOGIES & TRANS SERVICES HAS IMPACT ON THE PROFITS OF THE COMPANY A ND HAS TAKEN INORGANIC GROWTH AS STRATEGY TO INCREASE THE PROFITS BECAUSE OF THE PEC ULIAR ECONOMIC CIRCUMSTANCES AND BRAND VALUE. THE SAME IN THESE CIRCUMSTANCES CANNOT BE SELECTED. IT WAS SUBMITTED THAT ASSESSEE WAS IN MEDICAL TRANSCRIPTION SERVICES. 21.1. THE DEPARTMENTAL REPRESENTATIVE HOWEVER, OBJE CTED TO THE PLEAS OF ASSESSEE STATING THAT THE EXTRAORDINARY EVENTS OCCURRED IN E ARLIER YEAR AND THEREFORE, THE SAME CANNOT BE CONSIDERED AS HAVING ANY IMPACT IN THE YE AR UNDER CONSIDERATION. 21.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND N OTICED THAT THIS COMPANY OPERATES IN A DIFFERENT BUSINESS STRATEGY OF ACQUIRING COMPA NIES FOR INORGANIC GROWTH AS ITS STRATEGY. IN EARLIER YEARS ON THE REASON OF ACQUISI TION OF VARIOUS COMPANIES, BEING AN EXTRAORDINARY EVENT WHICH HAD AN IMPACT ON THE PROF IT, THIS COMPANY WAS EXCLUDED. AS SUBMITTED BY THE LEARNED COUNSEL, THIS YEAR ALSO, T HE ACQUISITION OF SOME COMPANIES BY THAT COMPANY MAY HAVE IMPACT ON THE PROFIT. CONSIDE RING THE PROFIT MARGINS OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. MOREOVER, THIS IS ALSO NOT A COMPARABLE IN THE CASE 25 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. OF M/S. MERCER CONSULTING (INDIA) P. LTD. (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 COMPARABL ES SELECTED. 36.1 THEREFORE, FOLLOWING THE SAID DECISION OF ITAT AS WELL AS RULE OF CONSISTENCY, THE COMPANIES OBJECTED BY THE ASSESSEE IN THE ADDITIONAL GROUNDS HAVE TO BE EXCLUDED FROM THE LIS T OF COMPARABLES. IN VIEW OF THE ABOVE, WE DIRECT THE AO/TPO TO EXCLU DE THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLES AND RECOMPUT E THE ALP AFRESH. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSE SSEE ARE ALLOWED. 37. AS FAR AS THE GROUND NO. 4 REGARDING CHARGING OF INTEREST U/S 234B AND 234D OF THE ACT, SINCE CHARGING OF INTERE ST UNDER THESE SECTIONS IS CONSEQUENTIAL IN NATURE, AND THE SAME W ILL ULTIMATELY DEPEND UPON THE OUTCOME OF THE ADJUSTMENT TO BE MAD E TO THE ALP, THE AO/TPO IS DIRECTED TO RECOMPUTE THE INTEREST UN DER THE SAID SECTIONS ACCORDINGLY. 38. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND APPEAL OF THE ASSESSEE IS ALLOWED. 39. TO SUM UP, REVENUE APPEALS IN AY 2007-08, 2008- 09 AND 2009- 10 ARE DISMISSED AND THE APPEALS OF ASSESSEE IN AY 2007-08 AND 2008-09 ARE ALLOWED FOR STATISTICAL PURPOSES AND AS SESSEES APPEAL IN AY 2009-10 IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 20167 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 31 ST MARCH, 2017. KV 26 ITA NO. 1762/H/11 AND OTHERS MONSTER.COM (INDIA) PVT. LTD. COPY TO:- 1. M/S MONSTER.COM (INDIA) PVT. LTD., C/O VENUGOPA L & CHENOY, CAS., 4-1-889/16/2, TILAK ROAD, HYDERABAD 500 001. 2. DCIT, CIRCLE 16(2), AAYAKAR BHAVAN, HYDERABAD. 3. CIT(A) V, HYDERABAD 4. CIT - IV, HYD. 5. DR, ITAT, HYDERABAD 6. GUARD FILE
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