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ITA 171/BANG/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1665 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2015
• Court: TRIBUNAL

Judgement Text

1 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.(TP) A NO. 171/BAN G/2015 (A.Y 2010-11) I.T.(TP) A NO. 207/BA NG/2016 (A.Y 2011-12) (THROUGH VIDEO CON FERENCING) GENPACT INDIA PRIVATE LIMITED (EARLIER KNOWN AS EMPOWER RESEARCH KNOWLEDGE SERVICES PVT. LTD.) DELHI INFORMATION TECHNOLOGY PARK, SHASTRI PARK, NEW DELHI-110053 (APPELLANT) VS DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-3(1)(2), BANGALORE (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDER DATED 30/12/2014 PASSED BY CIT(A)- 43, FOR ASSESSMENT YEAR 2010-11 & 2011-12 RESPECTIVELY. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- GROUNDS OF APPEAL I.T.(TP) A NO. 171/BANG/2015 (2010-11) 1. THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX (T RANSFER PRICING-IV), BANGALORE (TRANSFER OFFICER' OR LEARNED TPO) GRO SSLY ERRED IN DETERMINING APPELLANT BY SH. VISHAL KALRA, ADV & SH. S. S. TOMER, ADV RESPONDENT BY SH. ANUPHAM KANT GARG, CIT(DR) DATE OF HEARING 28.09.2020 DATE OF PRONOUNCEMENT 11.12.2020 2 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 AN ADJUSTMENT TO THE ARMS LENGTH ALF)OF THE APPEL LANTS INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES (AES) WI TH CT TO THE INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) RENDERED BY TH E TAX PAYER, U/S . OF THE INCOME-TAX ACT, 1961. POST WHICH, THE APPELLANT APP EALED BEFORE THE DISPUTE RESOLUTION PANEL (DRP) AND SUBSEQUENTLY, THE LEAR NED ASSESSING OFFICER (LEARNED AO) SC THE FINAL ASSESSMENT ORDER WITH A TRANSFER PRICING (TP) ADJUSTMENT OF RS.1,75,37,569. 2. LEARNED AO / LEARNED TPO ERRED IN REJECTING THE TP DOCUMENTATION MAINTAINED BY THE APPELLANT ON INVOKING PROVISIONS OF SUB-SECTION (3) OF 92C OF THE ACT CONTENDING THAT THE APPLICATION OR DATA USED IN THE COMPUTATION OF THE ALP IS NOT RELIABLE OR CORRECT. IN DOING SO, TH E LEARNED AO / LEARNED TPO HAS GROSSLY ERRED IN: 2.1 REJECTING COMPARABILITY ANALYSIS CARRIED IN THE TP DOCUMENTATION AND REPLACING IT WITH A FRESH COMPARABILITY ANALYSIS BA SED ON THE APPLICATION OF THE FOLLOWING ADDITIONAL/REVISED FILTERS IN DETERMI NING THE ALP: 2.1.1 COMPANIES HAVING DIFFERENT FINANCIAL YEAR EN DING (I.E. NOT MARCH 31, 2010) OR DATA OF THE COMPANY DOES NOT FALL WITHIN 1 2 MONTH PERIOD I.E. 01-04- 2009 TO 31.-03- 2010, WERE REJECTED; AND 2.1.2 COMPANIES WHOSE DATA IS NOT AVAILABLE FOR TH E FINANCIAL YEAR 2009- 10 WERE EXCLUDED. 3. THE LEARNED AO / LEARNED TPO, WHILE CONDUCTING THE COMPARABILITY ANALYSIS, ERRED IN REJECTING COMPANIES LIKE NITTANY OUTSOURCING SERVICES PRIVATE LIMITED, DATAMATICS FINANCIAL SERVICES LIMI TED, R SYSTEMS INTERNATIONAL LIMITED, CALIBER POINT BUSINESS SOLUT IONS LIMITED, ULTRAMARINE & PIGMENTS LIMITED AND JINDAL INTELLICOM PRIVATE LIMI TED, WHICH ARE FUNCTIONALLY COMPARABLE TO THE APPELLANT. 3 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 4. THE LEARNED AO / LEARNED TPO ERRED IN INCLUDING COM PANIES LIKE ACCENTIA TECHNOLOGIES LTD., FORTUNE INFOTECH LTD. A ND JEEVAN SCIENTIFIC TECHNOLOGY LTD. WHICH DO NOT SATISFY THE TEST OF CO MPARABILITY. 5. THE LEARNED AO / LEARNED TPO HAS ERRED IN COMPU TATION OF EMPLOYEE COST FILTER OF 25%, BY SELECTING JEEVAN S CIENTIFIC TECHNOLOGY LIMITED, WHICH HAS AN EMPLOYEE COST TO SALES RATIO OF 20.67%. 6. THE LEARNED AO / LEARNED TPO ERRED IN NOT CONSI DERING THE MULTIPLE YEAR / PRIOR YEAR FINANCIAL DATA OF COMPARABLE COMPANIES WHILE DETERMINING THE ALP. 7. THE LEARNED AO / LEARNED TPO ERRED IN USING DATA AS AT THE TIME OF ASSESSMENT PROCEEDINGS, INSTEAD OF THAT AVAILABLE A S ON THE DATE OF PREPARING THE TP DOCUMENTATION FOR COMPARABLE COMPANIES WHILE DETERMINING ALP. 8. THE LEARNED AO / LEARNED TPO ERRED IN NOT CONSID ERING THE PROVISION FOR BAD AND DOUBTFUL DEBTS AS OPERATING IN NATURE. 9. THE LEARNED AO / LEARNED TPO ERRED IN DETERMINA TION OF PRIME LENDING RATE FOR THE PURPOSE OF COMPUTATION OF WORKING CAPI TAL ADJUSTMENT. 10. THE LEARNED AO / LEARNED TPO ERRED IN IGNORING THE LIMITED RISK NATURE OF THE CONTRACTUAL SERVICES PROVIDED BY THE APPELLANT AND IN NOT PROVIDING AN APPROPRIATE ADJUSTMENT TOWARDS THE RIS K DIFFERENTIAL EVEN WHEN THE FULL-FLEDGED ENTREPRENEURIAL COMPANIES ARE SELE CTED AS COMPARABLE COMPANIES. 11. THE LEARNED A.O/LEARNED TPO ERRED IN NOT ALLOWI NG THE BENEFIT OF RANGE OF +-5% AS PROVIDED IN PROVISO TO SECTION 92C (2) OF THE ACT TO THE 4 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 APPELLANT, WHILE DETERMINING THE ASSESSEE ALP. ADDITIONAL GROUNDS VIDE APPLICATION DATED 21.05.201 5: 12. THE LEARNED AO / LEARNED TPO ERRED IN NOT APPR ECIATING THE FACT THAT THE APPELLANT BEING A CAPTIVE SERVICE PROVIDER DOES NOT BEAR ANY WORKING CAPITAL RISK AND HENCE, A NEGATIVE WORKING CAPITAL ADJUSTMENT IS NOT WARRANTED IN THIS REGARD. 13. THE LEARNED AO ERRED IN ARBITRARILY APPLYING TH E 75% THRESHOLD ON EXPORT EARNING FILTER (REJECTING COMPARABLE COMPA NIES HAVING EXPORT SALES LESS THAN 75%) AS PER DIRECTIONS ISSUED BY THE HONO URABLE DISPUTE RESOLUTION PANEL (DRP), IRRESPECTIVE OF THE FACT THAT 25% TH RESHOLD HAD BEEN PROPOSED BY THE LEARNED TPO IN THE ORDER ISSUED ON 29 TH JANUARY, 2014. I.T.(TP) A NO. 207/BANG/2016 THE HONBLE DRP/LD. ASSESSING OFFICER , ERRED ON FACTS AND IN LAW IN MAKING THE TRANSFER PRICING ADJUSTMENT OF RS. 1,65,16,692/ - HOLDING THAT THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) SERVICES DO N OT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOI NG SO HAVE GROSSLY ERRED BY: 1.1 REJECTING COMPARABILITY ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TP DOCUMENTATION/FRESH SEARCH AND REPLACING IT WITH A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF THE FOLLOWING ADDITIONAL/REVISED FILTERS IN DETERMINING THE ARMS LENGTH PRICE (ALP): 1.1.1 COMPANIES WHO HAVE EXPORT SALES LESS THAN 25% OF THE SALES IN THE CASE OF ITES CASES WERE EXCLUDED; 1.1.2. COMPANIES WHO HAVE PERSISTENT LOSSES FOR THE LAST THREE YEARS UP TO AND INCLUDING FY 2010-11 WERE EXCLUDED; 1.1.3. COMPANIES HAVING DIFFERENT FINANCIAL YEAR EN DING (I.E. NOT MARCH 5 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 31, 2011) OR THE DATA AVAILABLE DOES NOT FALL WITHIN 12 MONTH PERIOD I.E. 01- 04-2009 TO 31-03-2010, WERE REJECTED; 1.1.4. COMPANIES WHOSE DATA IS NOT AVAILABLE FOR TH E FINANCIAL YEAR 2010-11 WERE EXCLUDED 1.2 INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPAR ABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 1.3 EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIVO LOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERM S OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 1.4 RESORTING TO ARBITRARY REJECTION OF LOW-PROFIT/ LOSS MAKING COMPANIES BASED ON ERRONEOUS REASONS; 1.5 CONSIDERING THE PROVISION OF BAD AND DOUBTFUL D EBTS AS NON- OPERATING FOR COMPUTATION OF MARGINS OF THE APPELLA NT. 1.6 COMMITTING FACTUAL ERRORS IN THE COMPUTATION OF THE OPERATING PROFIT MARGINS OF THE COMPARABLE COMPANIES. 1.7 NOT PROVIDING APPROPRIATE ECONOMIC ADJUSTMENTS AS PROVIDED UNDER RULE INCOME-TAX RULES, 1962. 2. THE LD. A.O HAS GROSSLY ERRED ON FACTS AND IN LAW BY DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA TP ADJUSTMENT. 3. THE REFERENCE MADE BY THE LD. AO SUFFERS FROM JU RISDICTIONAL ERROR AS THE LD. AO HAS NOT RECORDED MANY REASONS IN THE ASSESSM ENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS NECESS ARY OR EXPEDIENT TO REFER THE MATTER TO THE LEARNED TRANSFER PRICING OFFICER (LD. TPO) FOR COMPUTATION OF THE ARM'S LENGTH PRICE (ALP), AS IS REQUIRED UNDER SECTION 92CA(1) OF THE ACT. 4. THE LD. A.O HAS GROSSLY ERRED ON FACTS AND IN LA W BY INITIATING PENALTY UNDER SECTION 27L(L)(C) OF AND WITHOUT RECORDING AN Y SATISFACTION FOR ITS INITIATION. 5. THE LD. A.O HAS GROSSLY ERRED ON FACTS AND IN LA W BY PROPOSING TO COMPUTE INTEREST UNDER SECTION 270 OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY 6 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 SATISFACTORY REASONS FOR THE SAME. THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE T O EACH OTHER. 3. FIRSTLY WE ARE TAKING UP THE APPEAL FOR A.Y. 201 0-11. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DATA RESEARCH . DURING THE YEAR, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE A.Y. 2010-11 ON 22.09.2010 DECLARING A TOTAL INCOME OF RS. 1,64,91, 778/- AFTER CLAIMING DEDUCTIONS U/S 10A OF THE INCOME TAX ACT, 1961 AMOU NTING TO RS. 89,28,796/- . DURING THE YEAR, IT WAS OBSERVED THAT THE ASSESSE E HAD INTERNATIONAL TRANSACTION EXCEEDING RS. 15 CRORES. THEREFORE, A R EFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER TO DETERMINE THE ARMS LEN GTH PRICE AS PER THE PROVISIONS OF SECTION 92CA OF THE ACT. THE TPO PASS ED AN ORDER DATED 29.01.2014 THEREBY MAKING ADJUSTMENT TO THE EXTENT OF RS. 1,55,01,790/-. THEREAFTER, THE DRAFT ASSESSMENT ORDER WAS PASSED O N 04.03.2014. BEING AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, THE ASSESS EE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP PASSED DIRECTIONS DATED 17.11.2014. ACCORDINGLY, THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 30.12.2014 ASSESSED THE TOTAL INCOME AT RS. 3,40,29 ,347 AND MADE VARIOUS ADDITIONS. VIDE ORDER DATED 01.08.2016, THE ASSESS ING OFFICER/TPO HAS RECTIFIED THE EARLIER ORDER UNDER SECTION 154 OF TH E ACT, THEREBY REVISING THE ORIGINAL ADJUSTMENT OF RS. 17537570 TO RS. 10936710 /-. THUS, A RELIEF OF RS. 45,65,080/- WAS GRANTED TO THE ASSESSEE. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE US. 5. THE LD. AR SUBMITTED THAT GROUND NO. 1 IS GENERA L IN NATURE AS REGARDS TO GROUND NOS. 5, 6, 7, 8, 9, 10 AND 13, THE SAME A RE NOT PRESSED. AS REGARDS TO GROUND NO. 12, THE SAME HAS BECOME INFRUCTUOUS, AS THE TPO HAS PASSED AN ORDER DATED 01/08/2016 UNDER SECTION 154 OF THE ACT. 7 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 6. THUS, WE ARE DISMISSING GROUND NO. 1, 5, 6, 7, 8 , 9, 10, 12 AND 13 OF THE APPEAL FOR A.Y. 2010-11. 7. AS REGARDS TO GROUND NO. 2, 3 AND 4, RELATING TO FINAL SET OF COMPARABLES SELECTED BY THE TPO, THE LD. AR SUBMITTED THAT TWO COMPARABLES HAS TO BE EXCLUDED AND ONE COMPARABLE HAS TO BE INCLUDED ON T HE FOLLOWING REASONS: I) ACCENTIA TECHNOLOGIES LTD.: THIS COMPANY HAS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES AS IT IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEES ITES SEGMENT. THIS COMPANY IS ENGAGED IN RENDERING IT ENABLED SERVICES AND RENDERS GAMUT OF SERVICES UNDE R SINGLE SEGMENT HEALTHCARE RECEIVABLE CYCLE MANAGEMENT. THE SERVI CES RANGE FROM MEDICAL TRANSCRIPTION, BILLING AND CODING. FURTHER, THE COMPANY DEVELOPS ITS OWN SOFTWARE PRODUCTS FOR BUSINESS PRO CESS OUTSOURCING. ACCENTIA IS THE FIRST COMPANY TO OFFER SOFTWARE AS A SERVICE (SAAS) MODEL IN THE HEALTHCARE RECEIVABLES MANAGEMENT AREA . THE ANNUAL REPORT OF ACCENTIA SHOWS THAT IT IS PROVIDING SOFTW ARE AS A SERVICE TO ITS CLIENTS AND THAT THE SERVICES PROVIDED INCLUDE SOFTWARE AND HARDWARE PRODUCTS. ON THE OTHER HAND, THE PRESENT A SSESSEE COMPANY IS ENGAGED IN PROVIDING DATA RESEARCH SERVICES TO I TS AE AND THEREFORE, FUNCTIONS PERFORMED BY ACCENTIA CANNOT BE COMPARED WITH FUNCTIONS OF THE ASSESSEE COMPANY. THE LD. AR FURTHER SUBMITT ED THAT ACCENTIA, OWNS SIGNIFICANT INTANGIBLE ASSETS WHICH ARE SUFFIC IENT TO IMPACT THE PROFITABILITY VIS--VIS ASSESSEE COMPANY. ACCENTIA POSSESSES BRAND VALUE / IPRS WHICH WILL TEND TO INFLUENCE THE PRIC ING POLICY AND THEREBY DIRECTLY IMPACTING THE MARGINS OF THE COMPA NY. HOWEVER, THE ASSESSEE COMPANY, ON THE OTHER HAND, DOES NOT HAVE IPR RECORDED IN ITS BOOKS. DURING THE F.Y. 2009-10, ACCENTIA HAD AC QUIRED IQ GROUP OF COMPANIES, UK WHICH CONSISTS OF 3 COMPANIES TA CTIQ LTD., CENTRIC LTD. AND NEOLOGIQ LTD. FURTHER, DURING FY 2 009-10, ASCENT 8 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 INFOSERVE WAS AMALGAMATED WITH THE IMPUGNED COMPANY , AND THE SAME HAS IMPACTED THE FIGURES OF THE IMPUGNED COMPA NY FOR FY ENDED MARCH 31, 2010. THE COMPANY STATES IN ITS ANNUAL RE PORT THAT THE CURRENT YEAR DATA IS NOT COMPARABLE TO ITS EARLIER YEAR DATA AS THE NUMBER OF DEPICTS INCLUDING AMALGAMATION OF ASCENT INFOSERVE PRIVATE LIMITED. THE COMPANY HAS ALSO MADE SOME ACQUISITION S / AMALGAMATIONS IN THE EARLIER YEARS WHICH DEPICTS TH AT THE ACCENTIA HAD PLANS TO GROW THROUGH TIE-UPS AND ACQUISITIONS OF OTHER COMPANIES. THIS PROVIDES AMPLE TESTIMONY TO THE FAC T THAT ACCENTIAS REVENUE AND MARGIN IS MORE DRIVEN BY ACQUISITIONS A ND AMALGAMATIONS OF OTHER COMPANIES RATHER THAN BY ITS OPERATIONAL ACTIVITIES. ACCENTIAS OPERATIONS ARE CLASSIFIED UN DER SINGLE SEGMENT HEALTHCARE RECEIVABLES MANAGEMENT. THERE IS NO ME NTION OF REVENUES DERIVED OR PROFITS ATTRIBUTABLE TO THE SEGMENT/(S) CONSIDERED UNDER ITES SERVICES. TPO HAS CONSIDERED PROFITABILITY OF ACCENTIA AT AN OVERALL ENTITY LEVEL WHICH IS INCORRECT. ACCENTIA H AS EXPERIENCED ABNORMAL / SUPERNORMAL / INORGANIC GROWTH FOR THE F Y 2009-10 AS COMPARED TO PREVIOUS YEARS. A TREND ANALYSIS CONDUC TED ON THE PROFIT MARGINS OF ACCENTIA DEPICTED A WIDELY FLUCTUATING T REND. THE LD. AR ALSO RELIED UPON THE DECISION OF THE DELHI HIGH COU RT IN CASE OF PCIT VS. B. C. MANAGEMENT SERVICES (P) LTD. (ITA NO. 106 4/2017), PCIT VS. ACTIS GLOBAL SERVICE PVT. LTD. (ITA NO. 94/2017), A MERIPRISE INDIA (P) LTD. VS. DCIT (ITA NO. 7014 OF 2014 AND XL INDIA BU SINESS SERVICES (P.) LTD. VS. ADDL. CIT (ITA NO. 1477 & 4833 OF 201 7) AS WELL AS DECISION OF THE TRIBUNAL IN CASE OF OMNIGLOBE INFOR MATION TECHNOLOGIES (INDIA) (P.) LTD. VS. ITO (ITA NO. 100 3/DEL/2016). II) FORTUNE INFOTECH LTD.: THIS COMPANY WAS NOT PROPOSED BY THE TPO AS A COMPARABLE COMPANY IN THE SHOW CAUSE NOTICE DA TED 30/09/2013. HOWEVER, THE SAME WAS INCLUDED AS A COM PARABLE COMPANY IN THE FINAL ORDER PASSED BY THE TPO. THIS COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPANYS I TES SEGMENT. 9 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 FORTUNE INFOTECH IS A WEB DEVELOPMENT SERVICE PROVI DER WHICH OFFERS CONSULTING AND TECHNICAL SOLUTIONS IN WEB APPLICATI ON DEVELOPMENT. IT DEVELOPS CMS BASED WEBSITES AND WEB APPLICATION USI NG JOOMLA WHICH IS USED TO OFFER VARIOUS CUSTOM DEVELOPMENT S ERVICES SUCH AS CUSTOM DESIGN AND TEMPLATE DESIGN SERVICES, E-COMME RCE DEVELOPMENT, INTEGRATION OF JOOMLA WITH OTHER WEB A PPLICATIONS, SEARCH ENGINE OPTIMIZATION, ETC. FORTUNE INFOTECH H AS DEVELOPED ITS OWN SOFTWARE CALLED FINETRAN AND IMAGE INDEX FO R PERFORMING SPECIALIZED SERVICES IN MEDICAL TRANSCRIPTION AND P ATIENT RECORD MANAGEMENT. THIS COMPANY HAS DEVELOPED UNIQUE SOFTW ARE FROM WHICH IT WOULD DERIVE SUBSTANTIAL BENEFITS/ADVANTAG ES WHEN COMPARED WITH THE ASSESSEE COMPANY WHICH IS A PURE CAPTIVE SERVICE PROVIDER AND OWNS NO INTANGIBLES. HENCE THE SAME IS NOT COMPARABLE TO THE ASSESSEE COMPANY. THE LD. AR SUBMITTED THAT TPO IN ITS BENCHMARKING APPLIED RPT FILTER OF 25% OF SALES. FO R THE YEAR UNDER CONSIDERATION (I.E. FY 2009-10), RELATED PARTY TRAN SACTIONS TO REVENUE RATIO IS NEARLY 25% AND FOR PREVIOUS FY 2008-09, IT IS NEARLY 56%. THIS COMPANY HAS CONSISTENT DECLINE IN THE TURNOVER OVER THE LAST 3 YEARS. THE LD. AR RELIED UPON THE DECISION OF THE T RIBUNAL IN CASE OF DCIT VS. XANSA INDIA LTD. (ITA NO. 2283/DEL/2011) A ND EQUANT SOLUTIONS INDIA (P.) LTD. VS. DCIT (2016) 157 ITD 2 92 (DEL) FOR A.Y. 2010-11. 7.1 THE LD. AR ALSO SUBMITTED THE INCLUSION OF R SY STEMS INTERNATIONAL LIMITED. I) R SYSTEMS INTERNATIONAL LIMITED: THIS COMPARABLE COMPANY IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE COMPANY. HO WEVER, TPO REJECTED THE SAME ON THE GROUND THAT IT IS FOLLOWIN G A DIFFERENT FINANCIAL YEAR ENDING. THE LAW PROVIDES FOR THE USE OF THE LATEST AVAILABLE INFORMATION AND USE OF PRIOR YEAR DATA UN LESS IT CAN BE SHOWN THAT THE YEARS FOR WHICH THE DATA ARE AVAILAB LE ARE UNLIKELY TO BE REPRESENTATIVE. THE LD. AR SUBMITTED THAT THE QU ARTERLY RESULT FOR 10 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 THE PERIOD 01.01.2009 TO 31.03.2010 AND 01.01.2010 TO 31.03.2010 ARE AVAILABLE IN PUBLIC DOMAIN. ACCORDINGLY, MARGIN FOR THE PERIOD 01.04.2009 TO 31.03.2010 CAN BE COMPUTED. ACCORDING LY, THE COMPANY SHOULD BE ACCEPTED AS COMPARABLE COMPANY. M ERE FOLLOWING A DIFFERENT FINANCIAL YEAR WAS NOT A VALID REASON F OR REJECTING A COMPARABLE COMPANY AS LONG AS THE DATA AVAILABLE WE RE CONTEMPORANEOUS AND IN PUBLIC DOMAIN AT THE TIME SP ECIFIED IN THE RULES. FURTHER, THE TPO OUGHT TO BE CONSISTENT IN H IS APPROACH IN SELECTING COMPARABLE YEAR ON YEAR BASIS. R SYSTEM H AS BEEN ACCEPTED AS A COMPARABLE COMPANY IN THE TP ORDER PASSED BY T HE TPO FOR THE PREVIOUS 3 ASSESSMENT YEARS I.E. 2006-07, 2007-08 A ND 2008-09, ON THE BASIS THAT IS HAS AN ITES SEGMENT AND QUALIFIES ALL FILTERS. CONSIDERING THAT THERE IS NO CHANGE IN THE BUSINESS OF R SYSTEMS IN THE CURRENT A.Y. 2010-11, REJECTING THIS COMPANY AS A COMPARABLE COMPANY WOULD BE INAPPROPRIATE. THE LD. AR RELIED U PON THE DECISION OF THE TRIBUNAL CIT VS. MERCER CONSULTING (INDIA) P . LTD. (2017) 390 ITR 615 (P&H) WHEREIN THE DELHI TRIBUNAL ORDER WAS CONFIRMED BY THE PUNJAB AND HARAYANA HIGH COURT. IN CIT VS. MCKINS EY KNOWLEDGE CENTRE INDIA PVT. LTD. (ITA NO. 217/2014), THE HON BLE DELHI HIGH COURT HELD THAT IF THE COMPARABLE IS FUNCTIONALLY S AME AS THAT OF TESTED PARTY THEN SAME CANNOT BE REJECTED MERELY ON THE GROUND THAT DATA FOR ENTIRE FINANCIAL YEAR IS NOT AVAILABLE. IF FROM THE AVAILABLE DATA ON RECORD, THE RESULTS FOR FINANCIAL YEAR CAN REASO NABLY BE EXTRAPOLATED THEN THE COMPARABLE CANNOT BE EXCLUDED SOLELY ON THE GROUND THAT THE COMPARABLES HAVE DIFFERENT FINANCIA L YEAR ENDINGS. THE LD. AR ALSO RELIED UPON THE DECISION IN CASE OF XL INDIA BUSINESS SERVICES (P) LTD. VS. ADDL. CIT ITA NOS. 1477 & 483 3 OF 2017 FOR A.Y. 2010-11. 11 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 8. AS REGARDS TO GROUND NO. 11, THE LD. AR SUBMITTE D THAT THE ASSESSEE SHOULD BE GIVEN THE BENEFIT OF RANGE OF +/- 5% AS P ROVIDED IN PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT, 1961 (THE ACT), IF REQUIRED. 9. AS RELATED TO EXCLUSION OF TWO COMPARABLES, THE LD. DR SUBMITTED THAT THE TPO HAS TAKEN ALL THE COGNIZANCE OF THESE COMPA RABLES AND AFTER PROPER VERIFICATION OF THESE COMPARABLES HAS SELECTED IN T HE SAME IN THE FINAL SET. THE LD. DR RELIED UPON THE ORDER OF THE TPO. THE LD. D R IN RESPECT OF INCLUSION OF ONE COMPARABLE SUBMITTED THAT THE SAID COMPANY HAS A DIFFERENT FINANCIAL YEAR ENDING AND CANNOT BE TAKEN AS COMPARABLE. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS EXCLUSION OF COMPARABLES, THE A SSESSEE HAS DEMONSTRATED THAT ACCENTIA TECHNOLOGIES LTD. AND FORTUNE INFOTEC H LTD. BOTH ARE FUNCTIONALLY DISSIMILAR TO ASSESSEES ITES SEGMENT. IN FACT IN ACCENTIA TECHNOLOGIES LTD. THERE IS AN INFLUENCE TO THE PRICING POLICY BECAUSE OF ITS POSSESSION OF BRAND VALUE/IPRS. ACCENTIA TECHNOLOGIES LTD. HAS ALSO MAD E ACQUISITION/AMALGAMATION WHICH DEPICTS THAT THE COM PANY HAD PLANS TO GROW THROUGH TIE-UPS AND ACQUISITIONS OF OTHER COMPANIES . AS REGARDS TO FORTUNE INFOTECH LTD., THERE IS A PRODUCT DEVELOPMENT ELEME NT WHICH CANNOT BE COMPARED TO THE ASSESSEES FUNCTIONING. THEREFORE, BOTH COMPARABLES SELECTED BY THE TPO I.E. ACCENTIA TECHNOLOGIES LTD. AND FORT UNE INFOTECH LTD. SHOULD BE EXCLUDED. WE DIRECT THE TPO TO EXCLUDE THESE TWO CO MPANIES FROM THE FINAL SET OF COMPARABLES. AS REGARDS INCLUSION OF R SYSTEMS INTERNATIONAL LTD., THIS COMPARABLE COMPANY APPEARS TO BE FUNCTIONALLY COMPA RABLE WITH THE ASSESSEE COMPANY. THE ONLY POINT WHICH TPO RAISED IS RELATED TO DIFFERENT FINANCIAL YEAR ENDING. THIS CANNOT BE THE SOLE REASON FOR REJECTI NG ANY COMPARABLE. THEREFORE, WE DIRECT THE TPO TO INCLUDE THIS COMPAR ABLE I.E. R SYSTEMS INTERNATIONAL LTD. THUS, GROUND NO. 2, 3 AND 4 ARE PARTLY ALLOWED. 12 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 11. AS REGARDS GROUND NO. 11, FROM THE PERUSAL OF R ECORDS, IT IS SEEN THAT THE BENEFIT OF RANGE OF +/- 5% AS PROVIDED IN PROVISO T O SECTION 92C(2) OF THE ACT WAS NOT TAKEN INTO ACCOUNT BY THE TPO. THEREFORE, WE DIRECT THE TPO THAT WHEREVER THERE IS A NECESSITY THE SAID BENEFIT SHOU LD BE GIVEN TO THE ASSESSEE AFTER VERIFICATION. GROUND NO. 11 IS PARTLY ALLOWE D. 12. THUS, APPEAL OF THE ASSESSEE BEING IT (TP) A 17 1/BANGALORE/2015 FOR ASSESSMENT YEAR 2010-11 IS PARTLY ALLOWED. 13. NOW WE ARE TAKING UP THE APPEAL FOR A.Y. 2011-1 2. DURING THE YEAR, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE A.Y. 2011-12 ON 29.11.2011 DECLARING A TOTAL INCOME OF RS. 1,98,74, 040/-. DURING THE YEAR, IT WAS OBSERVED THAT THE ASSESSEE HAD INTERNATIONAL TR ANSACTION EXCEEDING RS. 15 CRORES. THEREFORE, A REFERENCE WAS MADE TO THE TRAN SFER PRICING OFFICER TO DETERMINE THE ARMS LENGTH PRICE AS PER THE PROVISI ONS OF SECTION 92CA OF THE ACT. THE TPO PASSED AN ORDER DATED 14.01.2015 THERE BY MAKING ADJUSTMENT TO THE EXTENT OF RS. 1,53,78,701/-. THEREAFTER, THE DR AFT ASSESSMENT ORDER WAS PASSED ON 12.02.2015. BEING AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLU TION PANEL (DRP). THE DRP PASSED DIRECTIONS DATED 13.11.2015. ACCORDINGLY, TH E ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 23.12.2015 ASSESSED THE TOTA L INCOME AT RS. 3,63,90,732 AND MADE VARIOUS ADDITIONS. AS PER DIR ECTIONS OF THE DRP, A RELIEF OF RS. 2,49,564/- WAS GRANTED TO THE ASSESSEE. 14. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE AS SESSEE FILED APPEAL BEFORE US. 15. THE LD. AR SUBMITTED THAT FROM THE FINAL SET OF COMPARABLES SELECTED BY THE TPO FOLLOWING TWO COMPARABLES HAS TO BE EXCLUDE D, IN ONE COMPARABLE MARGIN TAKEN BY THE TPO SHOULD BE RECTIFIED AND TWO COMPARABLES SHOULD BE INCLUDED FOR THE FOLLOWING REASONS: 13 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 I) ACCENTIA TECHNOLOGIES LTD.: THIS COMPARABLE COMPANY IS KPO AND PRODUCT DEVELOPMENT COMPANY. ACCENTIA RENDERS KPO S ERVICES IN THE HEALTHCARE SECTOR BY WAY OF OFFERING 'SAAS MODEL. THE SOFTWARE HELPS IN MANAGING ALL THE HEALTHCARE DOCUMENTATION NEEDS, RE CEIVABLES MANAGEMENT NEEDS, PERFORMANCE TRACKING AND REPORTING. THEREFOR E, SAAS MODEL ACTS AS A ONE-STOP SHOP FOR A CLINICAL SERVICE PROVIDER. FU RTHER, ACCENTIA DEVELOPS ITS OWN SOFTWARE PRODUCTS FOR BUSINESS PROCESS OUTSOURC ING. THIS COMPARABLE COMPANY OFFERS COMPLETE HEALTHCARE DOCUMENTATION AS WELL AS RECEIVABLES MANAGEMENT SERVICES, INCLUDING INSTALLATION AND MAI NTENANCE OF ALL SOFTWARE, HARDWARE AND BANDWIDTH INFRASTRUCTURE. HO WEVER, THESE SERVICES DO NOT COME UNDER THE PURVIEW OF ITES RATHER THESE ARE IN THE NATURE OF SOFTWARE AND SOFTWARE SUPPORT SERVICES. THE ANNUAL REPORT OF ACCENTIA SHOWS THAT IT IS PROVIDING SOFTWARE AS A SERVICE TO ITS C LIENT. MOREOVER, ACCENTIA'S BUSINESS PLAN HAS BEEN RE-MODELED, WHEREIN THE PROD UCT DEVELOPMENT TEAM IS ENGAGED IN DEVELOPING AND DESIGNING CLOUD BASED HOS TED APPLICATION. ON THE OTHER HAND, THE ASSESSEE COMPANY IS A ROUTINE BUSIN ESS PROCESS OUTSOURCING ('BPO') SERVICE PROVIDER UNLIKE ACCENTIA WHICH IS E NGAGED IN KPO SERVICES WHICH ARE HIGHLY SPECIALIZED AND KNOWLEDGE BASED SE RVICES. THE ASSESSEE COMPANY IS ENGAGED IN PROVIDING DATA RESEARCH SERVI CES TO ITS AE AND THEREFORE, FUNCTIONS PERFORMED BY ACCENTIA CANNOT BE COMPARED WITH FUNCTIONS OF THE ASSESSEE COMPANY. WHILE CONSIDERING ACCENTIA AS A C OMPARABLE COMPANY, DUE CONSIDERATION SHOULD BE GIVEN TO THE FACT THAT ACCE NTIA POSSESSES BRAND VALUE / IPRS WHICH WILL TEND TO INFLUENCE THE PRICING POLI CY AND THEREBY DIRECTLY IMPACTING THE MARGINS EARNED BY ACCENTIA. PRESENCE OF IPR IS LIKELY TO COMMAND PREMIUM PRICES THAT THE CUSTOMERS ARE WILLI NG TO PAY FOR THE SERVICES / PRODUCTS. HOWEVER, THE ASSESSEE COMPANY, BEING A ROUTINE SERVICE PROVIDER DOES NOT OWN IPR OR SOPHISTICATED TECHNOLOGY. THIS COMPARABLE COMPANY ALSO MAINTAINS INVENTORY OF ITS SOFTWARE PRODUCTS DEVELO PED. FURTHER, THE COMPANY HAS INVESTED IN STRATEGIC TANGENT CORPORATION, A SO FTWARE DEVELOPMENT COMPANY WHICH IS HAVING EXPERTISE IN DEVELOPMENT OF SOFTWARE RELATED TO EMR AND SAAS. DURING THE CURRENT YEAR, INVESTMENT WAS M ADE FOR ACQUIRING 16% OF 14 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 THE TOTAL SHARES OF THE COMPANY. THIS SHOWS THIS CO MPARABLE COMPANY IS EXPANDING THE AREA OF SOFTWARE PRODUCT DEVELOPMENT. THIS COMPARABLE COMPANY HAS ALSO MADE SOME ACQUISITIONS / AMALGAMAT IONS IN THE EARLIER YEARS WHICH DEPICTS THAT THE ACCENTIA HAD PLANS TO GROW THROUGH TIE-UPS AND ACQUISITIONS OF OTHER COMPANIES THIS PROVIDES AMPLE TESTIMONY TO THE FACT THAT ACCENTIA'S REVENUE AND MARGIN IS MORE DRIVEN BY ACQ UISITIONS AND AMALGAMATIONS OF OTHER COMPANIES RATHER THAN BY ITS OPERATIONAL ACTIVITIES. ACCENTIA'S OPERATIONS ARE NOT CLASSIFIED UNDER SING LE SEGMENT 'HEALTHCARE RECEIVABLES MANAGEMENT'. THERE IS NO MENTION OF REV ENUES DERIVED OR PROFITS ATTRIBUTABLE TO THE SEGMENT/(S) CONSIDERED UNDER IT ES SERVICES. TPO HAS CONSIDERED PROFITABILITY OF ACCENTIA AT AN OVERALL ENTITY LEVEL WHICH IS INCORRECT. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: PCIT VS B.C. MANAGEMENT SERVICES (P.) LTD.; ITA NO 1064/2017 (DELHI HIGH COURT) OMINGLOBE INFORMATION TECHNOLOGIES (INDIA) (P) LTD VS. ITO ITA NO. 1003/DEL/2016 II) ICRA ONLINE LIMITED (SEG): ICRA IS ENGAGED IN INFORMATION SERVICES AND TECHNOLOGY SOLUTIONS AND THEREFORE, FUNCTIONALLY DI FFERENT FROM THE ASSESSEE COMPANY. THIS COMPANY IS ENGAGED IN THREE SEGMENTS I.E. INFORMATION SERVICES, OUTSOURCED SERVICES, AND SOFTWARE PRODUCT S & SERVICES. THE TPO HAS CONSIDERED OUTSOURCED SERVICES SEGMENT OF ICRA AS A COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESSEE COMPANY. IN THI S REGARD, THE LD. AR SUBMITTED THAT THE AFORESAID SEGMENT IS ENGAGED IN MAINTENANCE AND MANAGEMENT OF DATA. THUS, IT IS ENGAGED IN THE PROV ISION OF KPO SERVICES TO ITS CLIENTS. IN VIEW OF ABOVE, THIS COMPANY IS FUNCTIO NALLY DIFFERENT FROM THE ASSESSEE COMPANY. FURTHER, AS PER THE WEBSITE OF TH E COMPANY, THE COMPANY IS ENGAGED IN PROVIDING OUTSOURCING SUPPORT IN THE FIE LDS OF DATA SERVICES, RESEARCH AND ANALYTICS FOR WHICH SEGMENTAL BREAKUP IS NOT AVAILABLE. ICRA ACQUIRED NEW BUSINESSES FOR THE PROVISION OF HIGH-E ND SERVICES DURING THE YEAR. THE LD. AR FURTHER SUBMITTED THAT THIS COMPANY ALSO FAILS THE RELATED PARTY 15 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 TRANSACTION FILTER APPLIED BY THE TPO IN ITS OWN BE NCHMARKING (I.E. COMPANIES HAVING MORE THAN 25% RELATED PARTY TRANSACTIONS OF SALES ARE EXCLUDED). FURTHER, WITHOUT PREJUDICE TO ABOVE CONTENTION, THE LD. AR SUBMITTED THAT MARK-UP COMPUTED BY THE TPO IN CASE OF ICRA IS INCO RRECT. THE CORRECT UNADJUSTED MARGIN SHOULD BE 31.16% AS AGAINST THE M ARGIN COMPUTED BY TPO AS 34.21%. THE TPO HAS ERRED IN CONSIDERING PROVISI ON FOR DOUBTFUL DEBTS AS A NON-OPERATIONAL EXPENSE. ACCORDINGLY, WORKING CAPIT AL ADJUSTED MARGIN IS COMPUTED AS 30.05%. 15.1 THE LD. AR SUBMITTED THAT IN CASE OF JINDAL INTELLICOM LTD. , THE TPO HAS MADE ERRONEOUS MARGIN COMPUTATION. THE ASSESSIN G OFFICER WHILE GIVING EFFECT TO THE DIRECTIONS OF THE DRP DIRECTIONS HAS ERRONEOUSLY COMPUTED THE MARGIN OF THE COMPANY AND NOT FOLLOWING THE DIRECTI ONS OF THE DRP. IT HAS CONSIDERED 'BANK CHARGES' AS NON-OPERATING AND 'MISCELLANEOUS BALANCES WRITTEN-OFF ' OPERATIONAL EXPENSE. THE CORRECT MARGIN (BEFORE WO RKING CAPITAL ADJUSTMENT) SHOULD BE 10.92% INSTEAD OF 13.77%. ACC ORDINGLY, WORKING CAPITAL ADJUSTED MARGIN IS COMPUTED AS 11 . 86%. 15.2 THE LD. AR FURTHER SUBMITTED THAT THE FOLLOWI NG TWO COMPARABLES SHOULD BE INCLUDED AS COMPARABLE WHICH WAS REJECTED BY THE TPO I) R SYSTEMS INTERNATIONAL LTD.: R SYSTEMS IS FUNCTIONALLY COMPARABLE TO THE APPELLANT. HOWEVER, TPO REJECTED THE SAME ON TH E GROUND THAT IT IS FOLLOWING A DIFFERENT FINANCIAL YEAR ENDING. THE TP O APPLIED A FILTER THAT THE COMPANIES WHICH HAVE DIFFERENT FINANCIAL YEAR ENDIN G ARE TO BE REJECTED. THE LAW PROVIDES FOR THE USE OF THE LATEST AVAILABLE IN FORMATION AND USE OF PRIOR YEAR DATA UNLESS IT CAN BE SHOWN THAT THE YEARS FOR WHIC H THE DATA ARE AVAILABLE ARE UNLIKELY TO BE REPRESENTATIVE. THE LD. AR SUBMITTED THAT THE QUARTERLY RESULT FOR THE PERIOD 1 JANUARY 2010 TO 31 MARCH 2010 AND 1 JA NUARY 2011 TO 31 MARCH 2011 ARE AVAILABLE IN PUBLIC DOMAIN. ACCORDINGLY, M ARGIN FOR THE PERIOD 1 APRIL 2010 TO 31 MARCH 2011 CAN BE COMPUTED. ACCORDINGLY THIS COMPANY SHOULD BE ACCEPTED AS COMPARABLE COMPANY. MERELY FOLLOWING A DIFFERENT FINANCIAL YEAR 16 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 WAS NOT A VALID REASON FOR REJECTING A COMPARABLE C OMPANY AS LONG AS THE DATA AVAILABLE WERE CONTEMPORANEOUS AND IN PUBLIC DOMAIN AT THE TIME SPECIFIED IN THE RULES. FURTHER, THE TPO OUGHT TO BE CONSISTENT IN HIS APPROACH OF SELECTING COMPARABLE COMPANIES YEAR-ON-YEAR BASIS. R SYSTEMS HAS BEEN ACCEPTED AS A COMPARABLE COMPANY IN THE TP ORDER PASSED BY THE TP O FOR THE PREVIOUS 3 A.YS. I.E. A.Y. 2006- 07, 2007-08 AND 2008-09, ON T HE BASIS THAT IT HAS AN ITES SEGMENT AND QUALIFIES ALL FILTERS. CONSIDERING THAT THERE IS NO CHANGE IN THE BUSINESS OF R SYSTEMS IN THE CURRENT AY I.E. AY 201 1-12, REJECTING THIS COMPANY AS A COMPARABLE COMPANY WOULD BE INAPPROPRI ATE. THUS, THIS COMPARABLE COMPANY SHOULD BE EXCLUDED. II) MICROGENETICS SYSTEMS LTD. : THE LD. AR SUBMITTED THAT THERE IS NO DISPUTE ON THE FACT THAT MICROGENETICS IS FUNCTIONA LLY COMPARABLE TO THE ASSESSEE COMPANY. IN THE SEARCH CONDUCTED BY THE TPO, THIS COMPANY WAS REJECTED AS COMPARABLE FOR THE DATA NOT AVAILABLE I N THE PUBLIC DOMAIN. HOWEVER, THE DATA WAS AVAILABLE WHEN THE NEW SEARCH WAS CONDUCTED BY THE ASSESSEE COMPANY, HENCE THIS COMPANY WAS SELECTED B Y THE ASSESSEE COMPANY AS COMPARABLE AS IT PASSES THROUGH ALL THE FILTERS APPLIED BY THE TPO. THE LD. AR FURTHER SUBMITTED THAT THE BASIS OF REJECTION OF THIS COMPARABLE BY DRP IS GROSSLY INCORRECT. DRP HAD REJECTED THIS COMPARABLE ON THE PREMISE THAT OUT OF THE TOTAL EXPENSES OF INR 1,07,91,015 DEBITED IN P& L A/C, THE EXPENSES TO THE EXTENT OF INR 24,98,323 HAS BEEN INCURRED AS MEDICA L TRANSCRIPTION CHARGES, WHICH INDICATES THAT THE EXPENSES TO THE EXTENT OF 23% HAS BEEN INCURRED ON OUTSOURCING OF THE MEDICAL TRANSCRIPTION ACTIVITY. THE LD. AR SUBMITTED THAT THE AMOUNT OF TOTAL EXPENSES DEBITED IN P&L A/C AND AMOUNT OF MEDICAL TRANSCRIPTION CHARGES IS NOT CORRECT. IN FACT, THES E AMOUNTS PERTAIN TO SUBSEQUENT FY 2011-12 (RELEVANT TO AY 2012-13). THE LD. AR FURTHER SUBMITTED THAT THE CORRECT AMOUNT OF TOTAL EXPENSES DEBITED T O P&L A/C AND MEDICAL TRANSCRIPTION CHARGES IS RS.1,27,56,777 AND INR 22, 03,823 RESPECTIVELY. HENCE, ONLY EXPENSES TO THE EXTENT OF 17% APPROX. (INSTEAD OF 23% AS ERRONEOUSLY MENTIONED BY DRP) WERE INCURRED TOWARDS OUTSOURCING MEDICAL TRANSCRIPTION 17 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 ACTIVITY. MOREOVER, THE LD. AR POINTED OUT THAT THE EMPLOYEE COST TO TOTAL COST RATIO DURING THE YEAR UNDER CONSIDERATION IS APPROX . 61%. THE PROPORTION OF OUTSOURCED ACTIVITY IS NEGLIGIBLE AND THE BASIS OF REJECTION OF THIS COMPARABLE IS GROSSLY INCORRECT. DURING THE YEAR UNDER CONSIDERAT ION, THE COMPANY SATISFIES THE EXPORT SALES / FOREIGN EXCHANGE EARNINGS GREATE R THAN 25% TO THE TOTAL SALES, APPLIED BY THE TPO. IN VIEW OF ABOVE, THE LD . AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAS NOT O NLY PASSED THE FUNCTIONAL COMPARABILITY CRITERIA BUT ALSO THE QUANTITATIVE FI LTER. HENCE, THIS COMPANY SHOULD BE CONSIDERED AS A COMPARABLE. 16. THE LD. DR RELIED UPON THE ORDER OF THE TPO. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS EXCLUSION OF COMPA RABLES, THE ASSESSEE HAS DEMONSTRATED THAT ACCENTIA TECHNOLOGIES LTD. AND IC RA ONLINE LTD. (SEG.) BOTH ARE FUNCTIONALLY DISSIMILAR TO ASSESSEES ITES SEGM ENT. IN FACT IN ACCENTIA TECHNOLOGIES LTD. THERE IS AN INFLUENCE TO THE PRIC ING POLICY BECAUSE OF ITS POSSESSION OF BRAND VALUE/IPRS. ACCENTIA TECHNOLOGI ES LTD. HAS ALSO MADE ACQUISITION/AMALGAMATION WHICH DEPICTS THAT THE COM PANY HAD PLANS TO GROW THROUGH TIE-UPS AND ACQUISITIONS OF OTHER COMPANIES . AS REGARDS TO ICRA ONLINE LTD. (SEG.), THIS COMPANY IS FUNCTIONALLY DI FFERENT AND HAS THREE SEGMENT IN WHICH TPO HAS TAKEN INTO ACCOUNT OUTSOURCED SERV ICE SEGMENT WHICH CANNOT BE COMPARED TO THE ASSESSEES FUNCTIONING. THEREFO RE, BOTH COMPARABLES SELECTED BY THE TPO I.E. ACCENTIA TECHNOLOGIES LTD. AND ICRA ONLINE LTD. (SEG.) LTD. SHOULD BE EXCLUDED. WE DIRECT THE TPO TO EXCLU DE THESE TWO COMPANIES FROM THE FINAL SET OF COMPARABLES. IN RESPECT OF J INDAL INTELLICOM LTD. THE LD. AR POINTED OUT THAT INCORRECT MARGIN WAS TAKEN BY T HE TPO AND PRIMA FACIE IT APPEARS THAT THE MARGIN TAKEN BY THE TPO IS NOT PRO PER. THEREFORE, WE DIRECT THE TPO TO TAKE APPROPRIATE MARGIN FOR TAKING THIS COMPARABLE I.E. JINDAL INTELLICOM LTD. IN FINAL LIST OF COMPARABLES. AS RE GARDS INCLUSION OF R SYSTEMS INTERNATIONAL LTD., THIS COMPARABLE COMPANY APPEARS TO BE FUNCTIONALLY 18 IT (TP)A NO. 171/BANG/2015 & 207/BANG/2016 COMPARABLE WITH THE ASSESSEE COMPANY. THE ONLY POIN T WHICH TPO RAISED IS RELATED TO DIFFERENT FINANCIAL YEAR ENDING. THIS C ANNOT BE THE SOLE REASON FOR REJECTING ANY COMPARABLE. THEREFORE, WE DIRECT THE TPO TO INCLUDE THIS COMPARABLE I.E. R SYSTEMS INTERNATIONAL LTD. AS RE GARDS INCLUSION OF MICROGENETICS SYSTEMS LTD., THIS COMPANY WAS REJECT ED SOLELY ON THE GROUND OF DATA NOT AVAILABLE, BUT THE LD. AR POINTED OUT THAT THE DATA IS AVAILABLE. THEREFORE, WE DIRECT THE TPO TO INCLUDE THIS COMPAR ABLE I.E. MICROGENETICS SYSTEMS LTD. THUS, GROUND NO. 1.1, 1.2, 1.3, 1.4, 1 .5, 1.6, 1.7 AND 2 ARE PARTLY ALLOWED. AS REGARDS TO GROUND NO. 3, THE SAME IS G ENERAL AND HENCE DISMISSED. AS REGARDS TO GROUND NO. 4 AND 5, THE SAME RE CONSE QUENTIAL, HENCE NOT ADJUDICATED UPON AT THIS JUNCTURE. THUS, APPEAL OF THE ASSESSEE BEING IT (TP) A 207/BANGALORE/2016 FOR ASSESSMENT YEAR 2011-12 IS P ARTLY ALLOWED. 18. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF DECEMBER, 2020 SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 11/12/2020 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRA R ITAT NEW DELHI